Full text of "ERIC ED342332: Hearings on the Reauthorization of the Higher Education Act of 1965: Program Integrity. Hearings before the Subcommittee on Postsecondary Education of the Committee on Education and Labor. House of Representatives, One Hundred Second Congress, First Session (May 21, 29-30, 1991)."

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Hearings on the Reauthorization of the Higher
Education Act of 1965; Program Integrity, Hearings
before the Subcommittee on Post secondary Education of
the Committee on Education and Labor. House of
Representatives, One Hundred Second Congress, First
Session (May 21, 29-30, 1991).
Congress of the U»S*, Washington, DC, House
Subcommittee on Postsecondary Education.
ISBN-0-16-035677-6
Hay 91

502p.j Serial No. 102--39. Portions of document
contain small/light print.

U-S. Government Printing Office, Superintendent of
Documents, Congressional Sales Office, Washington, DC
20402 .

Legal/Legislative/Regulatory Materials (090)

EDRS PRICE
DESCRIPTORS

IDENTIFIERS

KF02/PC21 Plus Postage.

Access to Education? Accountability; Accreditation
(Institutions); College Athletics; Cost
Effectiveness; Economic Impact; Educational Finance;
Eligibility; ^Federal Legislation; Finance Reform;
* Financial Policy; Fiscal Capacity; Hearings;
* Integrity; Loan Default; Loan Repayment; Minority
Groups; Money Management; Postsecondary Education;
Program Evaluation; Risk; State Agencies; State Aid;
Srate Federal Aid; ^Student Financial Aid; ^Student
Loan Programs; Vocational schools
Congress 102nd; *Higher Education Act 1955

ABSTRACT

As part of a series of hearings on the
reauthorization of the Higher Education Act of 1965, testimony was
heard over 3 days on the integrity cf the federal stuui^nt financial
assistance programs. In the course of addressing this issue witnesses
testified the first day about public confidence in the programs,
accreditation of schools and their eligibility for participation m
federal programs, the cost of student loan defaults, for-profit trade
schools, minority participation in higher education, and suggestions
for reform. In addition to this testimony, the texts cf three bills
addressing reform of the Higher Education Act are presented: House of
Representatives Bills numbered 327, 1118, and 2246. The second day
heard officials from various federal agencies connected with the
federal student financial aid programs, including the Deparment of
Education and the General Accounting Office* The third day of
testimony drew witnesses from state guarantee agencies, state
approving agencies for Veterans Administration programs, state higher
education officers, and the Council of Post-secondary Accreditation
as well as witnesses to address college athletics financial
disclosure and public accountability. Also included are the texts of
the bills introduced, letters, supplemental materials, and the
prepared statements of the witnesses and of others who were not able
to appear. (JB)

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HEARINGS ON TBE REAirTHORIZATION OF THE
HIGHER EDUCATION ACT OF 1965: PROGRAM
INTEGRITY

HEARINGS

BKPOBETHE

SUBCOMMITTEE ON POSTSECONDARY EDUCATION

OF THE

COMMITTEE ON EDUCATION AND LABOR
HOUSE OF REPRESENTATIVES

ONE HUNDRED SECX)ND CONGRESS
FIRST SESSION

HEARINGS HELD IN WASHINGTON. DC. MAY 21, 29, AND 30, 1991

Serial No. 102-39

Printed for the use of the Committee on Education and Labor

vs. GOVERNMENT PHlNTlNO OFMCE
17-OK WAaMINOTDN : 1991

For sak by iht VS. Ctwemmcni Printing Office
Supenntendem of Document*. Ctrngrrssion^ S^ts Office. WaHhmgicm. IX^ 2(>402
ISBH 0-16-035677-6

ERIC

OOMMriTEE ON EDUCATK>N AND LABOR

WnXIAH D, FORD, fifidb^ui, Ouiirnmn

KBSm M> GAYDOS, fWr^lvwaim
WILLIAM (BOld CLAY, mmoari
GBOmS MSILBR, C^mmOm
AUBUN J. BfUSraY* Ptem^ylwiift

PAT WILLIAMS, UoaXmnm
MATTHEW 0. MABUNBZ, GUitonia
MJ^Xm R OWraa New \mk
CHARLB9 A HAYEB, Illinois
CABL a mKma XentttdKj
TifOMAS a SAWYER,
DONAU> M PAYNE, New J&my
NfTA M LOWEY. New York

CRAIG A WASmSGVOK Tsne

& SERRAI«>, 1^ Yo^
PATSY T MINK, Hswaii
ROMOT A ANDREWS. New Jere^
WILLIA M J. JR yra»80N> Loitiiiwm
WHS F. REED, Rhode blaiid
TIM RM &flBR, IiHtiena
FSTER J. VISCLOSKY, lodiaiui
RON LU GO, ^^ iKiB IduKb
JAIME B. FILTER, Puerto Rko

WILLIAM F. GOOPUNO, Ftan^lvaniA
E. THOBIAS OWJM AW, Mivoiiri
TIK^MAS & PETBL Wbomin
MARGK RCHJKraiA New Jtamy
STEVE OUNraSRSON, WieDnmiii
RICHARD K. ARMEY, Tm
HARSE5 W. FAWELL, Illiiu^
PAUL B mmV, M^iipm
CASS BAU^NGER, Ncotb Qmlina
SUSAN MMJNARL New York
BILL BARRCTT, NebnMkA
JOHN A BCXSHNER, Ohio
SOOrr U KLUG, Wbocmdn
MICKEY EDWARDS, (XdAhome

PAntOA R Rmo, ^aff Director
ANmw F. HAsniAN, MmoriSy Staff Director

SuBoommTB on FterBBOoNixui? Education

WILLIAM D,
PAT WILLIAMS, MimUna
CHARLES A HAYES, lUinok
JOSEPH Bl GAYDOe, Pteu^vaniA
GBCmGB BOLLER, CelifomiA
NITA M LO WEY, New Y(^
THCMAS C SAWYER, Ohio
DONALD M PAYNS, Nrw Jeney
JOLENE UNSOELD, Wwhington
CRAIG A WAWINOTON, Tbom
JOSfiE. SERRANO, New Yi»k
PATBY T. BONK, Kmli
ROBERT A ANDREWS, New Jereey
WIUJAM J. JEFFERSON, Lou^iuift
JOHN F. REED, RMe Um^
TIM ROEMER, Ind^iw
DALEKILDEB. Mkhigia

FORD, Mirft^gftn, Chairman

R THOMAS COLEMAN, Mte»un
SUSAN MCHJNARL New York
SCOTT L KhVQ, Wimsm^
WILLIAM F. GOOKING, PuiniylvuiiA
THOMAS E. ram WieomiD
MARGE IK>UKEBIA New Jereey
STEVE GUNDETOON, Wtecomui
PAUL B HENRY, Blich«g»D
RIOIARD K. ARMEY, Textt
BILLBARRETIT, NebrBska

CONTENTS

HearinspB held in WashingUm, DC:

May 21. 1991 « 1

May 29, 1991....- 288

May 80, 1991 353

Text of HH 827 „ «

Tort of HU 1118 28

Te«tofHJl2246 44

Oeiger, Ferdinand A., Athletic Director, University of Marylaiid, CoU^
PMt MD; and Murray Sperber, Prrfaraor of Engl»ti« Indiana Univerri-
ty, Bioomfa^lDn, IN » > 460

Gordon, HmJBart, a Represmtatii^ in CongreBs fran ti^ State of Ten-
nessee 36

Imhoiz. Elisabeth, Director, Ooavnimer mid Empkiyntent Unit of the
S(HiUi Bioc^lyn Legal ServfceSt Brooklyn, NY; Bdt^ert Atwell, Presi-
dent, American Council on Edwsiion, W^iington, DC; Ste^ira J.
Blair, Pres^dmt, Natkmal Asmdation of Trade and Technical Sdiools,
Washington, DC; Arthur Raw, Chairman, Board «rf Directm, Associa-
tion of Accredited Cosmetokw Sdsools, Falls Church, VA; Marc L.
Brenner, Presfatent and F^cal nnam:ial AW Director, Ohio Auto Diesel
Ttedi, Cleveland, OH; and, Rdsert B. Knutson, Chairman and CEO.
Education and Hanageonent Cornoration, Pitt^HUH^ PA ^ W

Sanders^ TW, UnferwBcretary, UA Depar^nent of Bduca^, Washing-
ton, DC; ffixompa^ by Mkhael Ftarrell, D^mty Assistant Secretary
of Studesit Financial Assistance and Acting Assi^ant Secretary of Post-
second^ Education, U.S. Departnwit ^Education, W^iington, DC;
HotL James B. Tbinnas, Jr., In^)ector General, U.S. Dei»rtment of
Educatira, Washington, DO, Lawrence H. llmnpson, Assktant Qmip-
troUer Geraral for Human Kesource Programs, UJ8. General Account-
ing ORice, Washii^ton, DC „ ^ - 245

Sweeny, Don, Li^^i^ttve IMrector, National Association of State Aprow-
ing Agencies, Augusta, ME; Joe McCormick, Executive Director, l^xas
Guaranteed Stuitot Loan COTporation, Austin, TX; Dr. Samuel Kipp,
Ezecmive Directiar, California Stuitent Aid Commission, Sacramento,
CA; Dr. David Longanecker, Executive Director, Cotorado Commimon
on Hi^er Educatimi. Denver, CO; aiwl Dr, Thurston E. Maming, Presi-
dent, &mncil on Postsecondary Accreditation, Wa^iju;t(m, DC.... 354

Waters, Hon. Bifasim, a Remesentative in Congress from the State of

California...,-. - 4*

Prepared statements, tetters, sus^emental materials, et o^era:

Anrarican Coundl on Edueraon, pr^)ered stat^ront of. 498

Atwell, BcberL President, Amenom Ooundl on Education, Washington,
DC, prepared statement of ' ^

Blair, Stephen J., Pmddent, Natfamal Association of Tn^ and Tedmtcal
Schools, Washinstffli, DC, prepared statement of 181

Brmrar, Marc L., President and Fiscal Financial fid Director, Ohio Auto
Diesel Tech, Clevetand, OH, prepared statement fof « Iw

CoeeU, Howard, Sports Cbmnwntator, prepared st»raient of 452

Coleman, Hon. E. Thomas, a Representative in C^pgress from the State
of Miflsauri, prepared statement of - ■ 2»5

G^dcs, Hon. Joseph M., a Representative in Congress mm the State of
Plennsytvania:

Letter dated June 5, 1991, to Ted Sanders, enclosing additi(mal ques-
tions for the record and responses to same 341

(in)

Prepared statonents, letter, supipJen^tal materials, et oet«ra— Continued
Oavdos* Hoa. Jm&A a Represeiitative in Cosgrera from the &ate ctf

Pmi^vaaia— Cmtinwd
Letter dated Jui^ S, 1991, to Hm. Jaam B. Thomaa, Jr., mclosiiig

additicmal mieitiiHtt fi»r the rec^ 344

Letter dated June 1991, to Lawreim H. Tiicaxipsoa. endorii]^ addi-

titmaJ qwatkma ftar the record and reipmaei to sam 347

Pr^iared stalmmnt of Bfeqr 21> 1991 ....^ 6

Pi&pemd statmrat rf May 29, 1991 ^ , 240

Premred ttategwDt of May 80, 1991 ^ 354

Gei^, fWdinaikl AOUMfc IHrector, University cHT iiiB^^^

PBxk* MD^ pmMreo atateonent of.,.. 462

Goodlinft Him, William a Rqmeentative in Con^imB frmn the State

of Benn^ivaniat jprraared atatmtent of ....^ * 12

0<mlim, Hsm, Bart, a Reineawtative in CmgreaB from tl» ^te of Ten-

noBBee, pr^parad stalramit crf^ 39

Heory, Hon. Paul B., a R^reaentative in GmgrBsa fnmi the State of

Mkh%pBn, prepared statement of , ^ 447

Iml»>lr« Elkabeth, Directrar, Ccmsumer ami Jbiploymcmt Unit of the

SoaUi KooUyn Legal S^^'kea. Brooklyn, NY, mep ar ed statrasmt of..... 124
Kii^ I^. Sami^ ^cutiro IMredm, Oaliforaia StiKlmt Aid Omun^

fldoo, Saeran^toi, CA. prqiared atatsi^t d*....... 395

Knutson, Robert B., Q^irman and CEO, Education and Manag^ent

OOTpmtoi, Pitt^ux^ PA, i^^^pared statement erf 84

L wgm m ecker . Dr. David, Eiecutive IKrector, CMorsdo Ccmmusicm on

HSgher Bducaticm, Denver. CX), prepared stateanent <rf.... 397

Manning. Dr. Thurston neBkEent, Crandl on Ptetaecondary Accredit

tationt Wadiingt<m, DC, prepared statement «rf.. * 412

BfcOormidu Joe, EaecutiTO Directtn-, Tesia Guaranteed Student Loan

Corporation, Austin. IXjN^xared statement rf... 371

Numi, BmL Sam, a Senator fh>m the State of Geoi^ ineittred

^^temeot 243

0*Neil« Bctert F., An^rican Asmdbtion of Univeraity Professors, pre^

pared statnmnt of 454

Pimie, Hon. Dtmald M., a Reinwentative in Qmgreas from the State of

New Jeiaey, fniepared statraient of 227

ResBO, Arthur. Chairman, Bmrd of IHrectors, Assodatim of Accredited

Cosnietology Sduxda, Falls Church, VA, prerared statement of 146

Roukema, Hra. Idai^e, a R^rreaentative in Congress fit)m the State of

New Jersey, preoared statement of 16

Sandteia, Ted, Undersecretary, UJS. Defwtment of Education, Waging-

Urn, DC :

Letter dated September 17, 1991, to Hon. Steve Gunderscm. enclosing

responses for the record 849

Prepared statement of.. 248

Sperfaer, Murray, Pktrfessor of &sglish, Indiana University. Bloomington.
IN, prepared statement of... 471

Sweeney, Don, Legislative Director, National Aasodaticm of State Approv-
ing Agendas, Augusta, ME, prq»rBd ^ten^t of 358

Thoma\ Hmt Jamea B., Jr., Inspector General, U.S. D^»urtmwt of Edu-
catim, Washington, DC, pmred stat^nmt of. 258

Thompam, Lawrem© H, Assistant Comptroller General for Human Re-
s(mree Pkograms, VS. Omienl Accounting Office, Washington, DC,
prepared statenmst of 29B

Waters, Hon. Maxine, a Representative in Cmi^ess from the State of
Oalifbmia, orepared statrasent of 54

Ycmng, David A., Administrator of Acacfemic Degrees and Program
Review, Office of Educational Policy and Plannir State of Oregon,
prepared statement of 229

HEARING ON THE REAUTHORIZATION OF THE
HIGHER EDUCATION ACT OF 1965

TUESDAY, MAY 21, 1991

House of Repbeskntativks,
sobcommntee on pc»rshx>ndaby education,

Committee on Education and Labor,

Washington, DC.

The subcommittee met, pursuant to call, at 9:45 a.m., Room 2175,
Rayburn House Office Building, Hon. William D. Ford [Chairman]

'^^Memll'rs present: Representatives Ford, Gaydos, Lowey, Sawyer,
Payne, Serrano, Andrews, Reed, Roemer, Coleman, Molmari, Good-
ling, Petri, Roukema, Gunderson, and Armey. , , ,

Staff present: Thomas Wolanin, staff director, Jack Jennings,
education counsel; Maureen Long, legislative araociate; Glona
Gray-Watson, administrative assistant; Jo-Marie St M^m, minor-
ity education counsel; and Beth Buehlmann, minority education co-
ordinator. _ , ...

Chairman Fobd. I'm pleased to reconvene the Subcommittee on
Postsecondary Education for this, the 11th of hearing in a senes of
45 on the reauthorization of the Higher Education Act. I might
serve, Tom, that every time I read this statement, the top number
keeps going up. We're up to 45 now. jj™^

Today is our first hearing in a senes of three which addre^
one of the most crucial issues we face during reauthorization: the
integrity of the Federal student financial assistance pr««Twns.

We must restore and reinforce public confidence m federal stu-
dent aid. Indeed, restoring public confidence in the programs is aii
absolute precondition for accomplishing the other goals of ttie sub-
committee for this authorization, goals such as renewing the a«n-
mitment to grant assistance and extending Federal aid to middle
income and working families. . , ^ . , i

It is particularly appropriate that these hearings are scheduled
during the next 2 weeks. Just yesterday. Senator Nunn s penM-
nent Subcommittee on Investigations released its report entitled
"Abuses in Federal Student Aid Programs." This report is a culmi-
nation of a year of hearings by the Investigation Subcommittee m

I look forward to hearing the comments and su^estions of our
witnesses, and I am especially pleased that we have before us today
a distinguished member of this subcommittee. Marge Roukema, to
testify on her legislation, H.R. 1118.

(l»

ERIC

«» 7

Mrs. Roukema has been very active in the past years on the
issue of improving prograimi' int^nrity, and I look forward to work-
ing with her to accomplish this ^cil.

We also have two other distm|fuished Members of Congress to
share with us their reoimmendations* Representative Bart Gordon
will d^nibe his experiences in Tenn^ee which led him to intro-
duce two bUls before us today, H.R. 327 and H.R, 2246.

Representative Maxine Watery who servra the same California
district that the former chairman of this committee, Guis Hawkins,
served, has extensive experience in the California legislature deal-
ing^ with student aid prcqsram int^rity .

I'm hopeful that these hearings mW expow the integrity prob-
lems our student aid prc^rams are facing and will give us an op-
portunitv to explore ways to effectively address these problems.

Tom, do you wish to make a statement?

Mr. Coi^EMAN. Thank you, Mr. Chairman. I have a statement for
the record, which I will ask to be submitted. But I, too, believe that
this is one of the more important hearing subjects that we're going
to addrew during the reauthorization.

I think in the public, and the public perception, is that there are
many things broken with this system that need to be fixed. They
get their information from Readers Digest articles, from exposes on
national television. And to a certain extent, many of that is true; it
is a correction needed time perception.

The report that the Chairman referred to was submitted y«ter-
day and released by the Senate committee. While it may list some
things that we have corrected in previous legislation, it might have
some findings that may be less than evidentiary. It does contain a
number of the points which we ought to address.

I, personally, believe that part of the problem that needs to be
fixed is the accreditation proc^. Key to the entire opportunity for
institutions to be ultimately certified and to receive of Federal
funds which we auUiorize in this li^islation.

So I will be asking some, hopefully, piercing questions to those
who will be coming forward on other panels, to try to get to the
meat of this issue, which I think is extremely important. It is one
which is a difficult one to get to, but one which we must answer in
our own minds in this reauthorization in order to make this sjrstem
better and to make it work better.

And that's what I would like to try and accomplish in these hear-
ings on the issue of int^rity. So thatnk you, Mr. Chairman,

Chairman Fobd. Thank you. Mr. Gaydos^

Mr. Gaydos. Thank you, Mr. Chairman. Under normal circum-
stance, I would insert my remarks in the record, but I think it's
important enough to take a few minutes to give them.

During the past few years, the reported cost of student loan de^
faults, and criticism of the Icmn prc^p-am has increased dramatical-
ly, and we all know that. Unfortunately, instead of addrewing
some of the real issu^ surrounding loan defaults, some people
hai^ taken the easy route and found a scap^^oat: career training
schools.

Some people believe that the sole purpose of these schools is to
rip off the government through the student loan programs. This is
completely untrue and false.

ERLC

r •

In Pennsylvania, there are 341 private career schools. They do
not receive tax dollars like their State supported counterparts, and,
unlike their nonprofit counterparts, they cfo pay taxes.

In the 1989-1990 period, according to the Pennsylvania Depart-
ment of Education, tiirae 841 said schools paid over $12 million in
Federal taxes and an additional $5.5 million in State and local
taxes.

Now, I'm not saying there are no bad apples in the career train-
ing sector of higher education; rfmously, there are some. But we
must concentrate our efforts on getting rid of the bad apples, and
not eliminating good schools from this pn^ram.

More than 2 weeks ago, this subcommittee heard from experts
who told us we, as a Nation, need a more skilled work force if we
are going to remain competitive in the world market.

Arnold Packer, Executive Director for the Secretary's Commis-
sion on Achieving Mecessaiy Skills, sat in this very room and said
that we need career training schools.

Before we embark, individually or otherwise, on a witch hunt
and make every student attending these schools ineligible for grant
and loan assisUmce, there are several issues that should be a>nsid-
ered. And I'll briefly mention just two or three of them right now.

First, study after study has shown that the number one rearons
students default on their eduo&tion Icmns is because of inability to
pay, not unwillingness to pay or dissatisfaction with the quality of
education they receive. It's a misconception floating around.

Over the years, we have seen the balance between grant and
loan assistance completely reverse itself Grants initially represent
ed about 75 percent of student a^istance; in the package, and
loans, around 25 percent. Now, today, grants make up about 25
percent of student assistance packages and loans, roughly 75 per-
cent, r. J, r y 1- ^

The Department of Education has five cat^onra of defaults, but
only three of them indicate true default status. The categories are:
(1) the loan was defaulted and resolved; (2) the loan was defaulted
but is now in repayment; (3) the loan was defaulted but paid in
full; (4) the loan was defaulted and written off or compromised; and
(5) the loan was permanently assigned to the department for collec-
tion.

Should we really be counting loans in cat^ones two and three—
the loan default now in repayment and the loan defaulted but paid
in full? No. Students who are either making payments on their
loans or who have already paid their loans in ruU are obviously not
in default.

And, third, there has never been a really acceptable audit of the
student loan program in this country. The Higher Education Act of
1965 clearly requires the General Amounting Office to ronduct an
audit evei^ year. GAO has tried to conduct the audits on numerous
occasions but the Department of Education keeps such deplorable
records that GAO has never been able to complete even one of
these audits to date. And that's a fact.

The department has been operating on assumptions and esti-
mates for the past 25 years. And while we have no idea how accu-
rate their estimates are, GAO has told my staff that because of the
record keeping problems they have encountered, the estimates can

ERIC

not be very accurate at all. It 8 up to all of us to m^e our own
conclusions as to the d^^ree of aoruracy, if any.

I, for one, really don't like to have to make policy di^usions that
directly affect our students' educational choices, the quality of this
Nation's work force and the ea>nomic a>mpetitiveneM of ttus
Nation, based on estimates that are described by experts as not
vexy accurate at all.

^niese are just three issu(K that should be given serioiw consider-
ation before making career training schools a »:ap^cmt for every
real or pen^ived prd>lem in the student loan prc^rams which
we're experiendi^ today.

Yes, obviously some career schools misuse Federal dollars by
doing a lousy job of preparing their graduates for future employ-
ment And, yes, somethii^ should be done about these whools, but
not at the expe^ of tho% schools, particularly in my State, who
have been turning out top notch graduate for yesrs and who con-
tinue to do so under the adverse criticism.

There are an extraordinarily number of high quality career
schools out there; all of us know that. And I know this for a fact
because IVe personally visited many of them in Pitt^ iigh and
other places. The graduates from these schools go on to make ou^
standing accomplishments in their chraen careers and exemplary
contributions to their (»)mmunities. Hopefully^ the witnesKS before
us today are discerning enough to realize that all career training
schools can not be and should not be painted with the same brush
that has been tainted by the bad schook, and that, I think, we
should get rid of.

Thank you, Mr. Chairman.

[The prepared statement of Hon. Joseph M. Gaydra follows:]

Opening Statement
Joseph 9f, GaydP8
nay 21, 1991
Fostsecondary Education Bearing

During the past few years, the reported cost of student

loan defaults and criticism of the loan prograas has increased

dramatically.

Unf ortunately, instead of addressing some of the real
issues surrounding loan defaults # some people have taken the
easy route and found a scapegoat — career training schools*

Some people believe that the sole purpose of these
schools is to rip off the government through the student loan
programs. This is completely untrue.

In Pennsylvania there are 341 private career schools.
They do not receive tax dollars like their State-supported
counterparts. And# unlike their non-profit counterparts, they
pay taxes.

in 1989-90, according to the Pennsylvania Department of
Education, these 341 schools paid over 12 million dollars in
federal taxes and an additional five and a half million
dollars in State and local taxes*

I'm not saying there are no bad apples in the career
training sector of higher education, there are. But we must
concentrate our efforts on getting rid of the bad apples, not
eliminating good schools from the program.

Hore than two weeks ago, this subcommittee heard from
experts who told us we^ as a nation^ need a more skilled
workforce if we are to remain competitive in the world market.

- 1 -

Arnold l^acker, Executive Director for the Secretary's
Conieeion on Achieving Necessary Skills, sat in this rooB and
said that we need career training schools*

Before we eabark on a witch hunt and sake every student
attending these schools ineligible for grant and loan
assistance, there are several issues that should be
considered. I'll briefly mention just three of thea right
now«

First, study after study has shown that the number one
reason students default on their educational loans is because
of inability to pay, not unwillingness to pay or
dissatisfaction with the quality of education they received.

Over the years we have seen the balance between grant and
loan assistance completely reverse itself. Grants initially
represented about 75 percent of a student's assistance package
and loans 25 percent* Today grants make up about 25 percent
of a student's assistance package and loans 75 percent*

Common sense tells us that when a student who should be
receiving grant assistance is forced to take out loans
instead, he or she is not going to be able to repay the loans.

Second, we are not accurately counting the number of
students who have defaulted on their loans.

The Department of Education has five categories of
defaults but only three of them indicate true default status.
The categories are: U) the loan was defaulted and
unresolved; {2i the loan was defaulted but is now in
repayment; O) the loan was defaulted but paid in full; 14)

- 2 -

ERIC

th« lo»0 w«« d»fault«d and writtan off or coapi:o»i«ed| and,
(5) tha loan was permanantly assignad to the dapartBcnt for
cpllaetion.

Should wa really be counting loans in catagories two and
thraa at dafaulta? Hoi Students who are either making
payments on their loans or have already paid their loans in
full, are obviously not in default.

And third, there has never been an audit of the student
loan programs.

The Higher Education Act of 1965 clearly requires the
Oeneral Accounting Office to conduct an audit every year. CAO
haa tried to conduct the audits on numerous occasions but the
Department of Education keeps such deplorable records that GAO
haa never been able to complete even one of these audits.

The department has been operating on assumptions and
estimates for the past 25 years. And, while we have no idea
how accurate their estimates are, GAO has told my staff that
because of the recordkeeping problems they have encountered,
the estimates cannot be very accurate at all,

I, for one, really don't like having tc make policy
decisions that directly affect our students' educational
choicer, the quality of this nation's workforce, and the
economic competitiveness of this nation based on estimates
that are described by experts as not very accurate at all.

These are just three issues that should be given serious
consideration before making career training schools a
scapegoat for every real or perceived problem in the student

- 3 -

loan programs •

Yes, some career schools misuse Federal dollars by doing
a lousy job of preparing their graduates for future
enployaent. And, yes, something should be done about these
schools f but not at the expense of those schools who have been
turning out top-notch graduates for years and who continue to
do 80.

There are an extraordinary number of high-quality career
schools out there. X know this for a fact because I have
personally visited many of them.

The graduates from these schools go on to make
outstanding accomplishments in their chosen careers and
exemplary contributions to their communities.

Hopefully, the witnesses before us today are discerning
enough to realize that all career training schools cannot be
painted with the same brush that has been tainted by the bad
schools.

- 4 -

Chairman Ford. Thank you. Mr. uoodling. Before I recognize
you, the staff has just handed me two dips from yesterday, one en-
titled, ••Curbing student loan defaults from The Washington Post,
and one fromCongressional Quarterly, "Nunn Blasts Loan System
in Long Awaited (Mtique." ^ , ... . .

Both of them contain statements that I can not cnUci2e as bemg
inaccurate, but they are misleading. In CQ, it says, "In the House,
however, Education and Labor Chairman William D. Fort is a
strong defender of tho trade schools and attended one himself.

There's the misconception. I went to Henry Ford Trade School,
which was a euphemistic way to describe a plan Iw which, at age
14, 1 was paid 20 cents an hour to work in the Ford Motor Compa-
ny while they taught me how to use toola , , ^

That was not a trade school that trained people to work for Gen-
eral Motors or Chrysler or anybody else. It was mtended to train
me, if I had been smart enough to stay there instead of going back
to high school, to become a tool and dye maker for Ford Motor
Company. . .

If you went through— and this was m 1940 as we were coming to
the end of the Depression and into World War II, every single grad-
uate or person wno succrasfully completed 4 years in that school,
and it was a 4 year program, went to work immediate for Ford
Motor Company and didn't start with the automobile assemblers;
you started witti the junior officer corps.

Preference for that school, incidentally, was given to the children
of Ford workers who died. And one of the strange accidents about
it is that they used to kill a lot of black people in the foundry.

And 80 the first place that I ever went to school with another
student who had black skin was at the Henry Ford Trade &hool.
And that was Henry Ford's idea of the way to reward a family
whme breadwinner had lost their life in his plant.

The point is that it was not a businera being run with «>me e^
pectation like the University of Michigan or Harvard or St^ort
or any of the other outstanding names you know of that provide an
educational opportunity of which you take and go where you will
with it and see what you can do with it. ^, ^ u

This was a very specific experience. Now, I want to say that by
way of indicating that I did not attend what these people are ge-
nerically calling a trade school. I attended what these people 1
think would identyy as an industrial employer's traimng program.
It was a very sophisticated one.

And, as a matter of fact, one of the reasons that I ve been so
quick to identify with that experience in my life m my Congres-
sional district is that a large number of the independent machine
shops, parts manufacturere in my district, are small companies
with anywhere from 50 to 500 employees, which are run by propje
who learned the trade, if you will, of being a machinist at the Ford
Trade School. And, indeed, some of them ended up as top people m
engineering and design for General Motors and Chrysler.

But it was not Ford's design to train anybody for anybody else.
We were being taught to do things the Ford way. . , , , .

For those of you who are mechanically inclmed, you might be in-
terested in the fact that during the war when I took a pre-enp-
neering course, I had to releam my math because Henry Ford did

ERIC

not use SAE standards, Anvbody in Uie room old enough to remem*
ber Ford cars before World War II <»n teU you that you could not
use a Chevrolet spark plug in a Ford car. The thr^ds on the spark
plug were different*

Henry Ford took an inch and a foot and a yard and divided it
into hundredths and tenths, not the way the British and we do it.
It was not the metric system because the metric system uws a
meter as the basic measurement He took a yard and set up his
own mathematics system and made his nuts and bolts accordmgly.

So if you owned a Ford car, you couldn't use a standard %t of
wrenches to work on it; you had to have a Ford monkey wrench.
And somebody heard me telling Uiis story and gave me one recent^
ly. It looked like the letter "F' as a matter of fact.

I say all of this by way of clearing up a confusion that I seem to
have caused by making reference to having gone to a U^ade school
That was its name, a trade school. Amongst the prople I grew up
with, it was a verv rrapected thing for a young man to do. And as a
white, young, suburl»n male, my family was extremely proud
when I was accepts at Henry Ford Trade School. And Tve never
been ashamed that I attended it.

I don% however, feel that it is fair to tiy to characterize my pro-
tection of the population that does have to fall back on the trade
schools after they fall through the cracks in our public school
system as being identified with me only because I went to a trade
school. They're identified with me because I have a concern that
the Federal Government never decided that the education needed
to be a brain surgeon is far more honorable than the education
needed to study preColimibian art or to be an auto mechanic.

That's really what's at the bottom of my concern, and I hope
that the writers of these articles will, in the future, remember that
I'm being much more socialistic or plebian» maybe, or populist,
than ^u re giving me credit for. It isn t a prejudice stemnung from
a delightful experience making 20 cents an hour reimiring for
Hennr Ford; it s the idea that there are other ways than the way I
ended up going to law school to make a decent, rmp^Htable living.
And that many people have no choice but to go in tnose directions,
and they have no options to get those except going to the military
or going to schools that, for a fee, will try to teach them a specific
level of skills.

And as the gentleman from Pennsylvania said, there are some of
these schools, and there always have been and always will be, who
do not fulfill the promise to the students. But I don't want to trv
ticking off the number of coll^pes and univemtira who might fall
into that same cat^ory.

The number of tmies we hear of a Ph.D. with outstanding stu-
dent loans who says the reason Tm not paying back the student
loan is after I got my PIlD. I could never find a job; Uierefore, the
school that s^ve me the Ph.D. cheated me. That's one of the things
we used to near about, Joe, before they sot on propriety schools,
the Ph.D. who didn't pay l»ck his student l(»n. And that goes back
to the b^inning of the Kea|^ administration.

So you can find failures m the educational Efystem wherever you
look, just as you can find succewes. And I hope that we can stay
away from class warfare in the consideration or rrauthorization.

ERIC

Mr.Goodling. ^ . , „ j i

Mr. GooDUNG. Thank you, Mr. C3mirman. I will read only a
paragraph out of my statement and ask that the r^ be included

in the record. . , , . . j . „

Chairman Ford. Without objection, it will be included, as well as

Mr. Coleman's. „

Mr. GooDUNG. And I would apolt^ii* to my three colleagues. I ve
been trying to find out for 3 years what people mean when they
say choice in education. So I have to go upstairs to find that out.
We have a hiring up there and they're gomg to tell me what is
meant when they say choice. And they're going to answer 150 ques-
tions that I have about what they mean.

In my prepared statement, I just wanted to read one paragraph.
My only hope is that in our zealousneas to combat the default rate,
we do not thixw the baby out with tiie bath water. Given our work
force needs in the coming years, we need a strong postsecondary
system. Schools and students should remain eligible for student aid
regardless of the type of postsecondary training, so long as the pro-
gram offers good educational services. We should be less concerned
about the type of institution, whether that institution is public or
private, academic or trade, nonprofit or propriety, and more con-
cerned with insuring pn^fram quality and continuing student
aax8S into these quality prc^prams.

I realize there are those who point to the high default rates m
the trade and technical schools, but in my home district, these
schools have extremely low default rates; in fact, lower than many
colleges and universities in Pennsylvania, and they offer a high
quality program that serves the needs of the area that I represent.

Thank you, Mr. Chairman.

[The prepared statement of Hon. William F. Goodhng follows:]

ERIC

'^m Honorabl* wlllln F. aoodlin9
of Pmuylvania
SubuonittM on FostsocmMtary Education
Hearif^r m th« Roauthorisation
of tho Highar Education Act
Hay 21 9. X991

Mr. Chairaan, I vish to thank you for holding a haaring
today w tha Reauthorization of tha liighar Education Act, ^ich
will focua on prograa integrity. Tha integrity of the loan
prograaa have coae under serious question* Defaults have risen
to an unacceptably high level; over $2 billion annually is
currently going to pay for the defaults in the loan prograe. As
a result, ve have already begun to place a number of
requiresenta on schools, students » and lenders*

Ky only hope is that in our zealousnoss to combat the
default rate, we do not "throw the baby out with the bath
water Given our workforce needs in the cosif^ years, ve need
a strong post secondary system. Schools and students should
remain eligible for student aid regardless of the type of
postsecondary training so long as the program offers good
educational services. We should be less concerned about the
type of institution, whether that institution is public or
privete, academic or trade, or nonprofit or proprietary and more
concerned with ensuring program quality and continuing student
eocees into those quality programs^! realize their are those
who point to the high default rates in the trade arrf technical
echoole, but in my home district these schools have extremely
low default rates and offer high quality programs that serve the
neede of south central Pennsylvania.^

ERLC

1 am hopeful that ve can find wy» to dnsura quality
throi^hout poatsocondary programs. I believe this can he
achieved with incentives to reward those programs that offer
good educational services to students. I believe we can enhance
the structure of the higher education act to Include goals for
programs, measure and standards, and accountability through
licensing, accreditations and oversight -

Againr I vlsh to thank Chairman Ford for holding this
hearii^ and I wish to thank the witnesses In advance for their
teetimony* I am certain that your recommendations will guide us
wisely for decisions we will be required to make for the
reauthorization .

I'.i

Chairman Ford. Mr, Sawyer.

Mr. SawtjSR. Thank you, Mr. Chairman. I just want to aswciate
myself with the comments of many of those who have spoken
before me. It's clear that unle^ we find a good, solid way to
staunch the flow of Federal fun^te that are being lost to defaults,
them prc^x^ms are going to lose public support, and with it the
confidence that's nec^^ary to keep sound prc^rams going.

Tve read about the reports from the Senate Government Affairs
Committee that plax^ the blame squarely on proprietary schools. I
wish the problem were Uiat simple and ^t easy. I think it s a
good deal more complex than that.

It's important to understand that proprietary schools fill an im-
portant place in the postsecondary spectrum, and we've just simply
got to find a way to continue to offer student fmancial aid to meet
the full range of pratsecondary choices if this Nation is going to
continue to be as strong as we have every right to expect that we
can be.

And I thank you for your indulgence, Mr Chairman.
Chairman Forp. Mr. Roemer.

Mr. RoEMTO. Thank you, Mr. Chairman. I will be very brief. I
just wanted to welcome my three colleague, and I look forward to
their expert testimony and their insight. From reading through
some of their testimony last night and this morning, I especially
look forward to, as my cx>Ueague from Tennessee points out, hear-
ing about some basic fundamental problems, one being that the
government dore not even know nor care to know about the stu-
dent that is applying for Federal aid.

As a big proponent of, and one who worked with the chairman
on the floor to get an increase in education funding, it is going to
be very difficult for me to justify to my constituents at home in-
creases in funding for education if we can not keep track of the
funding that we already have for the pn^ams existing in the Fed-
eral Government.

So on those two points, I look forward to the testimony and the
vision of my colleagues and also hope that they will look not just
toward the problems that we have here today, but also toward
what trade schools may look like in the future, and addr^ the vo-
cational, technical and professional skills that we need in the work
force. Maybe they can address that both in their statement and in
the questions that we'll ask.

Thank you, Mr, Chairman. And I look forward to hearing from
all three of you this morning.

Chaimtian FoRO. Mrs. Lowey.

Mrs, LowEY. Thank you^ Mr, Chairman. And I appreciate having
the opportunity to hear from my colleagues this morning. I look
forward to your testimony.

As IVe been travelling around my district, the key problem with
so many of our constituents besidra health care, besides housing, is
how we're going to send our childron to college. They are feeling
sque^ed; they're feeling as if they're caught in a vise. And they
just don't know how they're going to survive, neverthel^, how
they're going to send their kids to college. At the same time, we
find that billions of dollars are being lost in waste and fraud, and

21)

that is limiting our ability to r^pond to the needs of America's
families.

So I really look forward to your testimony, and I hope that you
shed some important light on this critical ii^ue of int^ity in
the student aid programs. Thank you for appearing before us
today.

C!hairman Ford* Mr* Andrews.

Mr. Andrews. Thank you, Mr. Chairman. I appreciate this con-
tinuing development of the issues before us. I look forward to the
testimony of our three colleagues today.

In reviewing your written testimony, I really think you're serv-
ing almost a micrmcope function for us* We started the proc^
knowing that there is a default problem. When you turn the micro-
scope more intensively, you see that it focuses to a great extent on
proprietary schools, but you're taking us the next step, which is to
get us beyond that generalization and gii^ us the tools to b^in to
distinguish between proprietary schools which are serving a viable
and Intimate function and those who are abusing the system.

So I anxiously look forward to your remarks, and thank you for
your time this momii^. Thank you, Mr. Chairman.

Chairman Ford. Mr. Reed.

Mr. Reed. Thank you, Mr. Chainnan* I, too, want to welrome my
colleagues here. They have firsthand experience with some of the
abuses in the Graduate Student Loan Pn^ram that we see result-
ing in ill service to our students and ill service to the taxpayers.

I think, though, as we look at this issue and as we focus on the
testimony, we have to imderstand that tra<te and technical schools
do provide a route to opportunity and to advancement for many
Americans. And so our task is to winnow out those pn^rams and
those institutions which don't serve the public, and reinforce three
prc^^rams which do.

Fm pleased to be participating in this process. Thank you, Mr.
Chairman.

Chairman Ford. My understanding is that Marge Roukema had
to go to the Committee on Banking, so without objection, her state-
ment will be placed in the record. And we'll be hearing a good deal
from her as we go on with this process.

[The prepared statement of Hon. Marge Roukema follows:]

O 1

CONGilESSWOMAN MARCE ROUKENA
TESTXMONV

SOBCOmiXTTEE ON POST S EC0I9 D A R Y EDUCATION
REAOTBORI Z ATXON HEARING ON BIGHER EDUCATION ACT

II A I 2

If 1 9 y

ank you Nr . Ch

a i r ma n

for t

opp

0 r

n i t y

to t«Rt

ify before my

own Su

b comm i

1 1

ee f

i s»u« I

have had an i

n t e n se

and 9

u s

tain

i n t • r fts

t in for aany

years

— was

t e

r f r

a u

and

atu90 i

n the Student

Pi na nc

ial Ai

Prog

r a

op me if you h

a V e he

a r d t h

i 8

one

ore.

federal insura

nee p r

09 r a m

t h

at p

r 0

eta

t housan

ds of Aaerican

c i t i s

ens beg i

n s t

After yeare o

f d r a i

n f the

e 1 1 1

a 1

signs

o t 1 n s o

Ivency appear*

C o n 9

r e s s i

warn

e d

sol u t i o

n is proposed*

The

s pe c i a

i n t e

r e

8 t ftp f O

rvard to say t

he pro

bl em i

be i n

B X A 9 9 e r

ated and that

ha 1 f -8

t ep re

f 0

r m s

a r

• u f f i c i

ent. Congress

d e b a t

e s and

e 1 a y

t i 0 n

until.

finally, the p

r o g r am

goes

n k r u

P t

With

billion

8 of taxpayer

dollar

sat s

t a

ke ,

t h

9 o V e r nm

ent St eps in w

i t h a

cost 1 y

ai lo

u t

•

is is not the

w e 1 J - w

0 r n s a

0 t

t h

a A V i ng s

and loan deba

c 1 e •

I'm t A

1 k

i n 9

t the

O '1

ERIC

dafault scandal in the
Student Loan pro9ram vh
Of defaults haa reached
do 1 1 a r s I

Federal Guaranteed
are the cusulative total
near ly $13 Billion

The

Fe de r a

1 Student Loan Pr

ram an

the

S6L i ndoa

try * r

e by no means the

aae .

t ,

unless ve

act w

isely today* the

rallel

between t

he t vo

nay be mo r e than

h e t 0 r i

1 .

y 09 i Be r r

a once

said« *Its deja

V u

all 0

again f *

£ach tiae we are faced vith a pr09raa in
crisis, Con9ress tries to avoid politically
dlCficult decisions. The result is that
relatively minor problems are permitted to
fester until they require huge bailouts.

As sy collea9ues on the Education Committee
Hnoif« I have pressed since 1 987 to reform the
student loan pro9ram throu9h a le9islative
mandate. The 9rowth in defualts is clear
evidence that the system is lacking the
necessary safeguards against frauds waste and
abuse .

Hhy do so many students default on their
loans? To a large estent# the increase in
student loan defaults is directly attributable
to the explosion in the number of trade and
technical schools over the past 10 years. Many
of these schools are simply scam operations that

go into busin«»B for tho sol* purposo of bilkln9
%h0 government out of student aid aoney • Some
of these sees schools are operating with annual
deCttSlt rates as high as 70 percenti

Please do not iii su nde r s t a nd • X do not isean

to imply th

at all t ra

de 8

ch oo 1 ope raters

are

malicious •

In fact.

many

of these school

provide an

i mpo r t an t

link

in our educ^tio

pipel ine •

Just last

mon t

h f 1 had the pie

a s u r e

of visiting

a fine t r

ade

school in my d i s

t r i c t

to obse r ve

fist hand

both

the fine educa t

i ona 1

program and job placement record.

Rowe ve X , the

r e

are b a

appl es *

e B e

schoola enroll at

en t s f s

u r e g ua

rant

eed loans

from banks and pr

O V

ide sue

a poor'

e d u c

a t i o n

that many student

ei ther

op out

or a

re unable

to find employmen

in the

f i

eld for

wh i

c h they

were supposedly t

r a

i ned .

8 s c h o o

1 ke

e p s the

student aid money

the ban

gets it

government'backed

oa n pay

n t ^ and

the

student

is left holding t

h e

bag w i

t h

a poor

ere

di t

rating^ no job, a

no i nc

o m

e to re

pay

the

student loan*

What we need is legislation that goes tu
the heart of the problem and takes immediate
action to stop the hemorrhaging in a program
that is essential to the higher education of
many students. Mr. Chairman* as you know« 2

li«v« introduced the student Loen Refors h^t ,
il»R« 1118, to make these auch needed changes.

fly bill requires lenders to exasine the
legitimacy of the schools to which they lend#
and Share the risli Cor loans gone bad. It
requires that the federal guarantee insurance
will be reduced fros 100% to 9SI vhen for any
consecutive two year period a school has a
default rate of wore than 30%. It prohibits the
flagrant recruiting abuses and accreditation
fraud perpetrated by the scan schools.

My bill calls for tougher accreditation
standards to prevent an owner of a trade school
from serving on the very accrediting board which
certifies his school. My reforms call for
student loan guaranty agencies to be allowed to
get information from State licensing boards to
help locate defaulting borrowers who have
pursued careers in professions requiring State
licensure.

My bill requires an independent audit of
graduation and placement statistics and tuition
refunds when a school m i s r e p r e s e n t a its
educational program. In addition^ my bill
prohibits the use of commissioned recruiters who
are paid by the number ot people they bring into
the school.

lyr ay studen

loan reforms require

Student

o provide mor

inforfflation to mak«^

the0 ea

i e

r to locate w

n they default.

my best to h

a V

e sy student loan

default

r e

f or ns added t

the Bouse

bill H , B .

5115 f t

Equity and £x

llence in

Educat ion

Act, du

i n

9 tha last Co

r a 5 s • My

asa ndme n t ,

hovaver

aa defeated .

a r

tbalaaSf my e

f f

o r t 8 were

validated —

or V i nd

ted vhen t

ea of tha

very same

r a f o r ma

i n

c I uded in oy

udent Loan

Reform bill

ware ad

ad in the Pia

1 year 1991 Budget •

Tha »Ab

1 i

t to-Benef i t

provision

which

requires that any student on the basis of

* Abl 1 i t y- t o -Bene f i t *• must, prior tp enrollment

pass an independently administer

exam

ination;

Sia^. Default Kate Cut-Off which

lis f

o r

achopla with default rates of 35

for F

1 s ca 1

Vaar l»91-ld92 and 301 for the f

1 o w i n

9 years

to lose their eligibility to rec

ve f e

d e r a 1

aid; and Delax^d Diabursament wh

h ere

a t e s a

30 day delayed disbursement for

1 1 oa

n s to

first time borrowers.

Let there be no mistake abo

u t

intentions. My aim is lOt to el

i na t e

the

trade school industry. However,

e can

and must

dredge from tha systea the scam

hoo 1 s

that are

ripping off the taxpayer and harmi

n 9 d e

serving

atudents*

NO one vants to cut access to higher
•dueation to any ^roup. Some have put forth the
arQUsent that aost of the high default rate
trade schools serve ainority students and if you
cut loans to these schoolSt you will deprive
Minorities of career training. nothing can be
further from the truth*

The hard fact is that these schools are
doing far greater haro to minority students by
remaining in business* What happens all too
often is that a scam school will recruit an
inner city student for courses and sign them up
for a federally guaranteed student loan. The
student enrolls and drops out because the school
lacks the ability to train students in
marketable and needed skills, leaving the
student unable to find a job, saddled with debt
which they cannot pay back and with a ruined
credit record. Any one in their right mind
cannot say that this benefits minorities.

In addition to financial losses to the
taxpayers, the losses extend to thousands of
worthy students who will be deprived of the
opportunity for higher education bece^use money
was wasted on defaults. In the end. our
nation's ability to compete in world markets
will suffer if we wait any longer to fix the
program*

I look forward to working with ny
eolleaques on the Education Conmittee to
•liminate fraud, waste and abuse and return
financial integrity to the student loan program
Thank you again, Mr. Chairman.

ERIC

102d congress
18T Session

H.R.1118

To metd the Higher EduoOkm Act of 1965 to rodttoe student bsn ^fiuills, aid

for otter {Hirposes.

IN THE HOUSE OF REPRESENTATIVES

FBBB0ABT 2B, imi

Mrt. RouKSMA introdui^ tl» foUowing bill; which wm referred to the
Committee on Edueatiosi and Labor

A BILL

To amend tlie Higher Education Act of 1965 to reduce student
loan defaults, and for other purposes.

1 Be U enacted by the Senate and Honse of Represenia-

2 tives of the United States of America in Congress assembled,

3 SECnON. 1. SHORT TITLE; REFERENCE.

4 (a) Shobt TnxB.— This title may be cited as the "Stu-

5 dent Loan Default Prevention Act of 1991".

6 (b) Rbfebences- — Beferences in this titie to "the Act"

7 are references to the Higher Education Act of 1965.

1 SEC 2. RISK SHARING BY LS«DERS TO 8TUINENTS AT HICH

2 DEFAULT RATS INSTinmONa

3 Section 428(bXlXG) of the Act (20 U.S.C.

4 1078(bKlKO)) is amended to read as follows:

5 '*{Q) insures not less than lOD percent of the

6 unpaid principal of loans insured under the pro-

7 gram, except that if one-third or more of the prin-

8 cipal amount outstanding during anj consecutive

9 2-year period on loans of an eligible lender con-
10 sists of loans to students for the cost of attend-
n ance at a high default rate institution, the pro-

12 gram insures 95 percent of the unpaid principal of

13 the loans of such lender that are insured under

14 the program;",

15 SEC 3. GUARANTY AGENCY PROHIBITION ON THE SALE OF

16 CERTAIN STAFFORD STUDENT LOAN USTi

17 Section 4280)H3) of the Act (20 U.S.C. 1078(bX3)) is

18 amended —

19 (1) by striking out "or'' at the end of subpara-

20 graph (B);

21 (2) by striking out the period at the end of sub-

22 paragraph (C) and inserting in lieu thereof a semicolon

23 and "or"; and

24 (3) by adding at the end thereof the following:

•HR Ills IB

1 "(D) sell lists of student borrowers who have

2 loans made, insured, or guaranty under this
S part.".

4 SEC 4. GUARANTY AGENCY USE OF STATE UCENSING BOABO

5 INFOBMATION.

6 Section 428(b) of the Act (20 U.S.C. 1078(b)) is amend-

7 ed by adding ai the end thereof the following new paragraph:

8 "(7) State ouabantt aosnct wfobmation

9 bequest of state licensino boabds. — Each guar-

10 anty agency is authorized to enter into agreements

11 with each appropriate State licensing board under

12 which the State licensing board, upon request, will fur-

13 nish the guaranty agency wi^ the address of a student

14 borrower in any case in whkh the loci^on of the stu-

15 dent borrower is unknown or unavailable to the guar-

16 an^ agency.".

17 SEC 6. SPECIAL LIBflTATION ON THE DEFERMENT OF PAY-

18 MENT OF PRINCIPAL AND INTEREST ON PLUS

19 LOANS.

20 Section 428B(cXl) of the Act (20 U.S.C. 1078-2(cKl))

21 is amende —

22 (1) by striking out "(A)"; and

28 (2) by striking out "; and (B) during any period

24 during which the borrower has a dependent student for

25 whom a loan oUigation was incurred under the section

•HB nil m

2$
4

1 and who meets the conditioiis required for a deferral

2 under clause G) td either such section''.

3 SEC 6. CREDIT BUBEAUa

4 (a) Notice of DBiJNQCENCY.--Section 430A(a) of the

5 Act (20 1080a(a)) is amended—

6 (1) by stiikii^ "and'* at the end of paragraph (2);

7 (2) by redesignating paragraph (3) as paragraph

8 (4); and

9 (3) by inserting after paragraph (2) the following:

10 ^'(8) with respect to any payment on a loan that

11 has been delinquent for 90 days, information concern-

12 ing the date the delinquency begui and the repayment

13 status of the loan; and".

14 (b) Notice to Boeboweb. — Section 430A(c) of the

15 Act <20 U.S.C. 1080a(c)) is amended—

16 (1) by striking ''and'' at the end of paragraph (3);

17 (2) by striking the i^riod at the end of paragraph

18 (4) and inserting and"; and

19 <S) by adding at the end the following:

20 *'i5) with resprot to notices of delinquency under

21 subsection (aKS)^ the borrower is informed that credit

22 bureau organizations will be notified of any payment

23 that is delinquent for 90 days or more/'.

24 (c) Limitation on Bbpobtino.-— Section 463(cX3)(B)

25 of the Act <20 U.S.C. 1087cc(gK3)(B)) is amended by striking

•HR 1118 IB

1 ", if ihaX account has not been previously report^ by any

2 other lu>lder of the noW'.

8 8EC 7. BEVISED DISCLOSUBB 8»)UIBEBIEIiiTS OF Sl£ LOANS.

4 Section 433(a) of the Act (20 U.S.C. 1083(a)) is

5 amended —

6 (1) in sub^tion (lO by innsrting "and except as

7 spMnfied in subsection (e) of this section" after "section

8 42BC"; and

9 (2) by inserting the following new subsection after

10 subsection (d):

11 "(e) Special Rules fob Supplbbiental Loans fob

12 Students. — Loans made under section 428A shall not be

13 subject to the disclosure of projected monthly payment

14 amounts required under subsection (aK8) of this section, pro-

15 vided that tiie lender provides the borrower with sample pro-
IB jections of monthly repayment amounts assuming different

17 levels of borrowing and interest accruals resulting from capi-

18 talization of mterest while the borrower is in school".

19 SBC 8. RBQUIBED 1NDEPE3WENGE OF A(XmDmNG AGEN-

20 aES FOB VOCATIONAL SCHOOLS.

21 Section 435(c) of the Act (20 U.S.C. 1085(c)) is

22 amended by adding at the end thereof the following new sen-

23 tence: "The Secretary shall not include on such list any ac-

24 crediting agency or association any of whose officers or direc-

tii8 m

ERIC

1 tors is affiliated, in any way» with a school sraking or obtain-

2 ing eligibility under this subsection,^'.

3 SEC 9. NOTICE ON DELINQUENT LOANS SEQUmSD.

4 (a) Pbe-Clams Assistance,— Section 436(d) of the

5 Act (20 U.S.C, 1086(d)) is amended—

6 (1) in paragraph (1) by striking "through (5)" both

7 places it appears and inserting ''throu^ (6)''; and

8 (2) by adding at the end thereof the following new

9 paragraph:

10 "(6) Request fob fbeh;laim8 assistance.—

11 To be an eligible lender under this part, each eligible

12 lender shall, if the agency that guaranteed the loan

13 offers pre-claims assistance for default prevention, re-

14 quest pre-claims assistance within the first 10 days

15 such assistance is available as specified by the guaran-

16 tee agency/'^

17 (b) Notice.— Section 428(k) of the Act (20 U.S.C,

18 1078(k)) is amended by-
IB (1) redesigna^ig ^ragraph (2) as paragraph (3);

20 and

21 (2) inserting the following new paragraph after

22 paragraph (1):

23 "(2) Pbovision op notice of bequest fob

24 fbe-claims assistance to elioiblb institu-

25 TION8.— Each guaranty agency shall, within 30 days

wm tits IB

1 of receipt of the request for pre-claims assistance,

2 notify each eligible institution, with respect to students

3 who are delinquent on the repayment of any loan re-

4 ceived for attendance at such institution, of the lender's
6 request for pre-claims assistance for default prevention

6 on such loan. Such information may be provided to the

7 eligible institution by submission of a copy of the lend-

8 er's pre-claims request or through other means.",

9 SEC. 10. REDUCTION IN SPECIAL ALLOWANCE.

10 (a) Amendments.— Section 438(b)(2) of the Act (20

11 U.S.C. 1087-l(b)(2)) is amended—

12 (1) in subpari^aph (AKiii), by striking "3.25 per-

13 cent" and inserting "3.0 percent

14 (2) in subparagraphs (B)(i) and {D)(i), by striking

15 "substituting *3,6 percent' for '3.25 percent' " and in-

16 serting "substituting '3.25 percent' for '3.0 percent' ";

17 (3) in subparagraph (BKii)—

18 (A) by striking "2.5 percent" and inserting

19 "2.25 percent";

20 (B) by striking '*1.5 percent" and inserting

21 "1,25 percent"; and

22 (C) by striking "0.5 percent" and inserting

23 "0,25 percent".

ERIC

•HB 1138 IH

3:.

1 (b) BFPBcnTB Date.— The amendments made by sub*

2 section (a) of this ^tion shaD ^ply with respect to loans

3 made on or after the date of enactment of thu Act

4 SECll.EUGmi£II^S1TnmON ACXSEDITATIONBU^

5 Section 481(a) of the Act (20 U.S.C. 1088(a}) is

6 amended by adding at the end thereof the following new

7 paragraph:

8 "(5) Whenever the Secretary determines ai^editation

9 for the purpose of paragraph (1), the l^cretary shall not ap-

10 prove the accreditation of any eligible institution of higher

11 education if the eligible institution of higher ^cation is in

12 the process of receiving new institutional accreditation by a

13 nation^ or regional accreditation agency unless the eligible

14 institution submits to the Senetazy all materials relating to

15 the prior accreditation, including the reasons, if applicable,

16 for changing the accrediting agency or association/'.

17 SEC 12. ADDITIONAL BORBOWEH INFORMATION REQUIRED.

18 Section 484(b) of the Act (20 U.S.C. 1091(b)) is

19 amended by adding at the end thereof the following new

20 paragraph:

21 ''(5) In order to be eligible to receive any loan under

22 this title, a student shall provide to the lender at the time of

23 applying for the loan the driver's license number of the stu-

24 dent borrower, if applicable, and the name and address of the

25 next of kin of the student borrower/*.

ERLC

1 SEC. a EXrriNTEBVIEW INFORMATION.

2 Section 485(b) of the Act (20 U.8,C. 1092(bKl)) is

3 amended by inserting before the last sentence thereof the fol-

4 lowing new sentence: "Each eligible institution shall require

5 that the borrower, at the completion of the course of study

6 for which the bonower enrolled at the institution or at the

7 time of departure from such institution, submit to the institu-

8 tion, the address of the borrower, the address of the next of

9 kin of the borrower, and the driver's license number, if appli-

10 cable, of the borrower during the interview required by this

11 subsection/'.

12 SEC. 14. TOLL-FREE CONSUMER HOTUNE.

13 Section 485 of the Act (20 U.S.C, 1092) is amended by

14 adding at the end thereof the following new paragraph:

15 "(e) Toll-Fbeb Consumbb Hotline.— (1) In addi-

16 tion to the toll-free telephone information provided for in sec-

17 tion 483, the Secretary shall contract for, or establish, and

18 publicize a toll-free telephone nuni^ber for use by the public,

19 in order to permit students who allege fraud or unfair prac-

20 tices by eligible institutions to inform the Department of such

21 fraud or unfair practices*

22 *'(2) The Secretary shall, dnrectly or by way of contract
28 or other arnmgement, make the toll-free telephone numW,
24 and the availability of the consumer hotline e8td)lished by
26 this subsection, generally available to students receiving fi-
26 nancial assistance imder this tiUe/\

•HR 1118 IH

1 SEC 1& AUPiT OF graduahon and placebient

2 STATISTICS.

3 Section 487(aK8) of the Act (20 U.S.C. 1094(bK8)) »

4 amended by insertii^ after "most recent available data" the

5 following: certified on the basis of an audit performed by

6 an independent public agency/'.

7 SEC. 16. RESTRICTIONS ON INSnTUTIONAL PROMOTIONAL

8 AcnvmEs.

9 Section 487(a) of the Act (20 U.S.C, 1094(a)) is further

10 amended by adding at the end thereof the following:

11 ^'(12) The institution does not—

12 *'(A) use any contractor or any person other

13 than salaried employees of the institution or a vol-

14 unteer to conduct any activities related to recruit-

15 ing and admission of studente, including (^vass-

16 ing, surveying, promotion, or similar activities; or

17 "(B) pay any (^mmission, bonus, or other in-

18 c^ntive payment based directly or indirectly on

19 success in securing enrollments to any {^rson en-

20 gaged in any such activity.''.

21 SEC. 17. ACADEBflC YEARDEFDnnON.

22 Section 487(a) of the Act (20 U.S.C. 1094(a)) is further

23 amended hy adding at the end thereof the following new

24 paragraph:

•m Ills m

ERIC

3 J

1 "(IS) The institiition wiD use tlie same definiti(Mi

2 of 'academic year' for all programs authorized by this

3 title.",

4 SEC 18. TUITION REFUNDS,

6 (a) Refund RuLE.—Sectioa 487(cK2)(BKi) of the Act

6 (20 U.S.C. 1094(cK2)(B)©) is amended by adding at the end

7 thereof the following new sentence: ''In addition, the Secre-

8 tary may require such eligible institutions to make refunds in

9 accordance with division (iii)/'.

10 (b) Refund Pbocedubes,— Section 487(cX2)(B) of the

11 Act is amended by adding the following new division after

12 division (ii):

13 "(iii) When the Secretaiy determines there has Wn a

14 violation, failure, or misrepresentation pursuant to division

15 (i), the Secretary may r^uire the ixistitution to refund the

16 student^s tuition and fees. The Secretary shall establish pro-

17 cedures for refunding the tuition and fees. Such procedures

18 shaU—

19 *'(£i first require the payment by the institution to

20 the United States GDvenunent of any portion of the

21 tuition and fees paid with F^ral funds rei^ived under

22 this title (other than funds under subpart 3 of part A
28 and {wt B of this title); and

24 ''(ID then require payment by the institution to

25 the lender of that portion of the tuition and fees attrib-

#HR niB IH

3:>

1 utable to a loan made, issued, or guaranteed under

2 part B of this title/',

3 SEC 19, SPECIAL ACCBEDTTATION RULES.

4 Section 487(c) of the Act (20 U.S.C, 1094(c)) is

5 amended —

6 (1) by redesignatii^ paragraph (3) as par^;raph

7 (5); and

8 (2) hy adding after paragraph (2) the following

9 new paragraphs:

10 **(3) The Secretary is authorized to carry out the provi-

11 sions of paragraph (1)(D), relating to limitation, suspension,

12 or termmation of an eligible institution whenever the institu*

13 tion withdraws from a nationally recognized accrediting

14 agency or association during a show cause or susi^nsion pro-

15 ceeding brought against that institution.

16 "(4)(A) Whenever a nationally recognised accrediting

17 agency or association reports pursumit to subparagraph (B)

18 that an eligible institution was denied institutional accredita-

19 tion, the Secretary is authorized to carry out the provisions of

20 paragraph (1)(D) relating to limitation, suspension, or termi-

21 nation of an eligible institution.

22 "(B) The Secretary is authorized to enter into such ar-

23 rangements with accrediting agencies and associations as

24 may be necessvy to assure notice of the denial of institution-

25 al accreditation in order to carry out subparagraph (A)/'.

#itK tm IH

1 SEC 20. BEGUIATICNiS FOR INSTITirnONAL DISCU»UBE OF

2 BORROWER SECOROa

8 The Secretary shall promulgate regulations specifying

4 the legal restrictions and the requirements of eligible institu-

5 tions relating to loan counseling and reporting requirements

6 including but not limited to disclosure of Iwrrower records to

7 third parties, the Fair Debt Collection Practices Act, and any

8 other applicable Federal law.

•HK ill! IB

Chairman Ford. And we'll start with Mr, Gordon* Without objec-
tion, the prepared statements you have with you will be ii»ertea in
the record immediately following your comments. You may add to
^em or summari^ in any way that yon tlunk will be most helpful
to the record.

STATEMENT OF HON. BART GORDON, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF TENNESSEE

Mr. Gordon. Thank you, Mr. Chairman and members of the
committee. I appreciate the chance to be with you today. And I
want to compliment you on your really aggre^ve set of hearings
on this veiy important issue. I looked over the list of hearings and
topics and I was verv impre^ed at what you're doing.

And let me say that fm one that has (insistently and enthusi-
astically b^n supporting increases in student financial aid. And,
quite frankly, in my gut, in the past, when I would hear people
criticize a lot of the programs, I felt that they were just looking for
an excuse to undermine them.

But after being dir^tly involved and looking at this over the last
year, I have changed some of my views. I haven't changed my
views as to whether or not financial aid for postsecondaxy educa-
tion, and for trade schools, is important or not; I still think it's
very important*

But I have changed my mind as to the value to the taxfrnyers
and to the students. My investigation be^n with my own concern
that for-profit trade schools that have Imnkrupted the Higher Edu-
cation Assistance Fund a)uld do the same thing to the Tennessee
Student Asdstant Corporation, my State's only other guarantee
agency.

State guarantee agency failures, due to high default schools in
almost every State, threaten students hopir^ to attend coll^ or
any other tvpe of postsea>ndary in^tution. As my investigation
continued, I found problems in our student aid pn^rams to be
broader and deeper than Fd ever imagined.

Now, I only have a brief time today, so Ym going to make three
very quick points. Number one, we don't know enough about
what's going on in our student aid programs. For example, we
spend more than $5 billion per year on the Pell grant program, but
no member of Congress can teu his or her constituents whether a
single Pell grant student is completing course work, finishing
school, or getting a job.

The Department of Education does not cross reference all stu-
dent financial aid forms with the IRS to see if the student is actu-
ally or accurately reporting their inrome. The Dei»rtment of Edu-
cation does not have the names of all the students who have gotten
student loans, much less keep track of students' renayment status.
The Dei^utment of Eklucation does not check a student's Social Se-
curity ntunber with the Social Security Administration to see if
that student even exists*

The fact is that the Federal Government, in over 26 y^rs, has
committed over $1(M) billion and, now, over $18 billion annually, to
a program that has no comprehensive centralized student rea>rd
system. We must do better.

•12

Number two, scores of individuals in every part of this country
are worse off for ever having participated in the student loan pro-
gram. The other day, a staff person said this, and I quote, "Despite
waste, fraud and mgh default rates, if even one underprivileged
student in four or five or ten is helped at even the worst a;hool,
then our tax dollars are well spent." I can assure you that staffer
has not been hearing from the three in four or the nine in ten that
weren't helped at that bad proprietary school

I found that even the most irresponsible diploma mill will gradu-
ate and place a few at risk students. My father used to say, 'Even
a blind hog will occasionally get an acorn." But I think you 11 fmd
that most often times these students are going to succeed because
of their motivation and, oftentimes, despite the quality of instruc-
tion they're receiving.

But what about th<»e low income studentp that end up with little
ur no worthwhile training, with no job recwmbling the one they
were promised, if any job at all, debt they can't pay, bad credit, no
chance ibr future student aid, and, maybe woroe of ail, a loss of
their own sslf'^stceixi?

Those are the students that I've been hearing from almost daily
for the past few months, the people who are worse off, much worse
off, for ever having signed a student aid form.

And I'd like to read a few lines from one of many letters that
I've received. And I quote, "It sounded wonderful. I was then ex-
plained that just signing this paper would give me a way to go to
school and not owe a thing. A grant, they called it. Well, to make a
long story short, the course was a joke. I can not see any way that I
can repay this thing back. I'm working at a minimum wage job and
barely make it now. I can't pay it; I can't see any way out. Can you
help?**'

We can help by toughening accrediting standards so that stu-
dents have a better chance of getting something when they sign
the dotted line.

My accreditation bill, H.R. 2246, would require accrediting agen-
cies to take into account default rates and course of study comple-
tion rates, and would re<^uire agencies that accredit vocational and
proprietary schools take into account job placement rates.

Number three, the most simple and easy solution to the default
problem— just provide more money in grants— is really no solutiori
at all. With the Omnibus Reconciliation Act of 1990, we decided
schools with 40, 50 or 60 percent default rates should not continue
to receive student loans, but we did nothing to prevent th<^ same
schools from continuing to take unlimited Pell grants.

That doesn't make sense. A school that isn't handling loan dol-
lars responsibly can't be expected to do better with grant money.
My bill, H.a. 327, addresses the problem by basically applying the
default standards contained in OBRA 1990 for student loans to the
Pell grant program.

In closing, I would ask that each of you take a long, hard look at
this issue. You will hear reassuring wonb today that it s just a few
bad schools, and that all the problemB will soon be solved. Before
you accept all the comforting assurances you hear, take a look for
yourself at the default rates for schools in your own State. Go to
your State vocational school and talk to the director. Let that di-

ERIC

rector tell you about the students that are coming to those schools
from proprietary schools that didn't do the job. the GAO find*
ings on accrediting agencies and student loan defaults or Senator
Nunn's report, released last fViday.

And, roost importantly, take time to listen to people who have
been spun out of the srystem by false promise. If you really believe,
as I do, that the F^eral Government must provide financial assist-
ance to give Americans a wide range of educational opportunities,
and if you really believe we need a more technically skilled work
force, and if you really are concerned about what is happening to
the at risk students out there, then don't turn your back on the
problem we face.

Solutions won't be easy or pleasant, but this pn^am is worth it.
Thank you.

[The prepared statement of Hon. Bart Gordon follows:]

ERIC

1-;

- Hm can*t tall if our l^ll Grant r«cipi«nts ar« getting jobs^
or «v0n if they are coi^leting their coursevorK* or even finishix^
school,

Kuaber 2: Scores of individuals have cme to aa who are far
worse off for ever having hecme a part of any of these prograes.
There are those who believe that if our student loan axul Pell Grant
prograae help 1 in 10, or even 1 in 30 people they are worth it.
Many people in congress carry that understandable viev.

Here are ease exas^lea:

**X>ear Congresaaan Gordon,

My naae is williaa L. Herritt and five years ago, when X
was 18 years old, X aade a very stupid aiataXe* X enrolled in
USA Training, a truck driving school. They sent a
representative to ay house, and to aalce a long story shorty X
got sucked in."

Williaa goes on to state:

"To sua it all up ay credit is ruined, l»a laid-off froa
ay job**

OR:

"Dear Congressaan Gordon: . . ,

"It sounded wonderful. X was then explained that just
signing this paper would give m a way to go to the school and not
owe a thing - a grant they called it. Well to aake a long story
short, ... The course was a joke. They were not even certified in
Tennessee to be teaching that course. And now there is a $7,ooo.oo
»grant* that will be paid off (if payaents are B»de) when X aa 50
years old, I cannot see anyway that X can repay this thing

back. I aa working at a ainiaua wage job and barely aake it now.
f*. I can't pay it and X can*t see anyway out, Can you help?"

Nuaber 3; The aost sisple and eaey solu^.ion - just give larger
and Bore Pell Grants - is really no solution at all*

X support the idea of increasing aid to etudents, but I don't
support pouring aore aoney into the coffers of Irresponsible
school e.

Let ae conclude by saying, I believe in giving to
underprivileged students. But I've been out there in aany of those
schools, and many of the pJaces i visited, don't even give high risk
students a reaote chance of getting a solid education, they el&ply
chum out another diploma and turn the student out on the street
with a large debt, and no job skills.

ERIC

102D CONGRESS
IST Session

H. R. 327

To amend the Higher Education Act of 1965 to deUy the disburfemenl of Fell
Onau to first-year students, to make ineKgibte for partocij^tion in the Pell
Grant program any insUlution with a higji default rate on student loans, and
for other purposes.

m THE HOUSE OF REPRESENTATIVES

jAjn^ABY 3, 1991

Mr. OoKDON introduced the foHowing bU'; which waa referred to the Committee

on Education and Labor

A BILL

To amend the Higher Education Act of 1965 to delay the
disbuwement of Pell Grants to first-year students, to make
ineligible for participation m the Pell Grant program any
institution with a high default rate on student loans, and for
other purposes.

1 Be it enacted by the Senate aTid House of RepreserUa-

2 fives of the United States of America in Congress assembled,

3 SECTION 1. SHOBTTITLE.

4 This Act may be cited as the "Educational Grant

5 Reform Act of 1991".

1 SEC 2. AMENDMENTS TO THE RIGHEB EDUCATION ACT OF

2 IMS.

3 (a) Initial Disbubbemsnt REQuiBEUBM<ra. — Sec-

4 tion 4U(e) of the Higher Education Act of 1965 (20 U.S.O.

5 1070a(e)) is amended by adding at the end the following:

6 "The first payment made under this section to a student ^o

7 is entering the first year of a program of undergraduate edu-

8 cation, and who has not previously obtained a grant under

9 this part, shall not (regardless of the amount ol such grant or

10 the duration of the period of enrollment) be presented by the

11 institution to the student for endorsement \mtil 80 days after

12 the student begins a course of study, but may be delivered to

13 the eligible institution prior to the end of that dO<day period."

14 (b) Ineligibility Based on High Default

15 Rates.— Section 312(bMl) of the Higher Education Act of

16 1965 (20 U.S.C. 1058(b)) is amended—

17 (1) by striking "and" at the end of subparagraph

18 (E);

19 (2) by redesignating subparagraph (F) as subpara-

20 graph (0); and

21 (3) by inserting after subparagraph (E) the follow-

22 ing:

23 "(F) which is not ineligible to participate in a

24 program under part C as a result of high default

25 rates as described m section 435(8K3) (20 U.S.C.

26 1088(a)); and".

•HR sr IH

1 (c) Effecttvs Date. — The amendments made by this

2 section shall be effective with respect to anj awards made for

3 any academic year beginning after the expiration of the 30-

4 day period beginning on the date of the enactment of this

5 Act.

6 SEC. 3. STUDY OF ACCREDITATION OP PROPBIETABY

7 SCHOOLS.

8 (a) In Genebal.— The Secretary of Education shall

9 conduct a study on the accreditation of proprietary instita-

10 tions of higher education (as defined in section 435 of the

11 Higher Education Act of 1965). Such study shall—

12 (1) examine conflicts of interest with respect to
IS members of the boards of proprietary institutions of

14 higher education; and

15 (2) determine if the current system of accredita-

16 tion adequately represents the interests of the public by

17 accrediting institutions that educate students adequate-

18 ly and use public funds responsibly.

19 (b) Repobt to Conobess. — The Secretary of Educa-

20 tion shall transmit a report to the Congress on the study

21 required by subsection (a) before the expiration of the 180-

22 day period beginning on the date of the enactment of this
28 Act.

•HR 3?7 IH

er|c ^

H.R.2246

To iamd Oe EQ^er BA»ititti Aet of 1965 to ttrangthon tha oveni^it
Igr Ike SoorsUiy of Bdnotian tiho of ooSiie uBrodHing

ogeaciM^ and fig oChar pnqioMi.

IN THE HOUSE OF KBPRE8ENTATIVES
Mat 7, 1991

Mr. mtiodiioQd tte fidhmfaif hSl; whidi rebmd to the

Committiw im Sfamtioo and Labw

A BILL

To amend the Higher Education Act of 1965 to strengthen
the Gversigfat by the Seoretaiy of Education of the func-
tioning of ooll^ accrediting agencies, and for other
purp(»es.

1 Beit enacted 5y ^ Senate and House of RepreseniO'

2 fives of ^ United StcUes cfAmanca in Congress assembled,

3 SECTION l.SHOBTTIILS;BEFSBSNCBSL

4 (a) Short Title.— This Act may be cited as the

5 "Accreditation Oversi^t Act of 1991".

6 (b) RBFEBENCIE& — ^R^erences in this Aet to "the

7 Act" are references to the Hi^ier Education Act of 1965.

5 'J

45
2

1 sacxvnmmm.

2 Tbe Congress finds that —

3 (1) Tho Ysrioos agendes that aooredit instita-

4 tions <^ hii^ier ednoBti<m ha:ra an important resspon-

5 ability to assure that mmiimiin edneational stand-

6 ards ar« met and that the institutions are providing

7 their students with a -vahiaUe edaoatN)n.

8 (2) One i^^x}^tant meffinxe of educational value

9 ought to be the snooess staadents at a particular in-

10 stitution exQoy in finding suitable employment after

11 attending the institution. Repayment of federally

12 guaranteed student loans is one indicator of the suc-

13 cess former students have in finding suitable em-

14 ployment.

15 (3) Accrediting schools that do not provide edu-

16 oational \alue perpetuates the national problems of

17 students receiving a poor eduoidion and ta3q)aiyer8

18 getting stuck with billions of dollars a year in stu-

19 dent loan ddaults.

20 (4) Therefore^ Congress ^ould enact l^i^tion

21 that improves Department of Education supervision

22 of wwrediting ageiwies in order to assure that the

23 agencies only aooredit schools that provide educa-

24 tional value for their students and make proper use

25 of Federal financial aid fimds.

•BR SM« m

1 BBC S. ACCSEMTAnm OVmUUUT BB(BnBEiaDn&

2 (a) Amendment.— Title SI of the Higher Educa-

3 tion Act of 1965 is an^i^ed by adding at the end tl^«of

4 the following S80ti<m:

5 -SEC. 1114. ACCSEDirAXIONBBVIKW.

6 "(a) ApFUGABXLiTT OP SscnON.— The require-

7 ments of this seetion shall Bpj^ to the identification by

8 the Seeretaiy of nationally rmognized aoerediti]^ agencies

9 and associations under sections 435, 481, and 1201 of this

10 title.

1 1 *'(b) Organizational Requirement.— The head of

12 the bureau or office of the Department of Education re-

13 sponsible for the performance of identifying and ^proving

14 nationally recognized accrediting agencies and organiza-

15 tions shall report direcUy to the A»$?stant Seo^taiy for

16 Postseeondary Education and shall not report to or be

17 subject to supervision by ar^^ officer or employee who is

1 8 subordinate to such Assistant Secretary.

19 "(c) accrbditino agencies and organizations

20 Required to Review Default Rates and Job Place-

21 MENT Rates. —

22 Default rates,— The Secretary shall

23 not identify or approve an accrediting agency or or-

24 ganixation for purposes of section 435, 481, or 1201

25 of this Act unless such agency or organization has

26 adopted adequate proi^ures to use hi^ oohort de-

«B SM IB

47
4

1 fkult rates (as that tenn is defined in seotion

2 43S(m)) as an indtoatka that the aoademio pit^ram

3 <^ an institution raqnires ftirther review in order for

4 the inaHtation to r^ain its aocreditation.

5 "(2) COUBSB OP STUDY OOMFLBTION —

6 The Seoretaiy shall im^ ^entiQr or ai^rove an ac-

7 crediting agenqf or tMrganieation for pnipos^ of seo-
Z tion 435, 481, or 1201 <^ this Aet unless sudi agen-
9 cy or organization has adopted adeqoate procedures

10 to use low oour^ oi atady eonq>letion rates as an in-

11 dieation that the academic program of an institution

12 requires further review in order for the institution to

13 retain its aocreditation.

14 "(3) Job flagexent rates fob vocational

15 AND FBOFBiETABT SCHOOLS, — Secretaiy diall

16 not identify or improve an aoorediting agency or or-

17 ganization for purposes of motion 435(e), 481(b}, or

18 481(c) of this Act unless such agency or institution

19 has adopted adequate prooedures to uro low j<d)

20 placement rates as an indication that the aoadonic

21 pn^ram of an institution requires further review in

22 order for the institution to retain its aocreditation.

23 The Secffetaiy ^lall, by regulation, estaUish prooe-

24 dures by which siMsh job plaoement rates shall be re*

25 ported to the Seoretaiy.

1 "(d) SpmAL Reviews Basbd Upon Default

2 Rates* — ^The Soeretaiy diaU oi^ a gpedal

3 operaUcms of any a(»»i9ditiiig agency or

4 cohort default rate of more than 35 peroent of the instita-

5 tions accosted hy thai agmicy or oi^^anizatlon axcMds 25

6 percent

7 "(e) Report on Confucts of Intbbest.— The

8 Secretary shall, within one year after the date of enact-

9 ment of this section, conduct a stu^y of, and submit to

10 the (Congress a rqx>rt on, the extent to which conflicts of

1 1 interest impair the proper funetionii^ of accrediting agen-

12 cies and organizations for purposes of programs under this

13 Act. Such report shall contain such reeommendations for

14 remedial action as the Secretaiy considers necessary and

15 appropriate/^

CSudrman Fosd. Thank you. Ms. Waters.

STATEMENT OF HON. MAXINE WATERS, A REPRESENTATIVE IN
CONGRESS FmU THE STATE OF CAUFORNU

Ms. Waters. I would 0rst like to tiiank you for providing the op-
portunity for me and my colleagues to be here today tratifying on
this veiy important sub,^ct I feel particularly honored as a new
member to have the oi^iortunity to have input at such an ^rly
stage in my career here.

I have worked for quite some time on this issue in California and
offered reform l^nislation there. And I had not anticipated that I
would have the opportunity to enter the subject matter as quic^y
as I am. And, due to you and your hearings, I'm able to do that

Mr. Chairman and members of the committee, the district that I
represent is located in the south central portion of Los Angeles.
That is the district that was so ably represented by Gus Hawkins,
who chaired this committee.

Most of my constituents are African American and hispanic.
Many of them are desperately looking for a better life. They're
trying to achieve that dream by followu^ the American way— edu-
cationaJ adrancement leading to job opportunitira leading to eco>
nomic betterment

While Congrras and the American people have tried to help
them and mulionB like them throughout the Nation achieve that
dream, fast buck artists imve been able to exploit the hop«t of ear-
nest students and pocket millions of tax dollars through the oper-
ation of poorly run, often outright fraudulent voca^bnal sdiool pro-
grams.

Abuses by private, for profit vocational schools have ba^me not
only a national scandal, but a national tragedy. Many of these
schools' antics entice students to enroll based on misleading, if not
completely fal^, representations.

Many of the students find that Uie training or materials provid-
ed are inadequate, if not completely meaningless; that potential
jobs at a living wage are not available at all upon graduation; that
available jobs, su£ as in the security guard field, do not require
any fuivance training or experience; or that inadequate training re-
ceived at Khools does not qualify students to obtain or retain em-
ployment.

An example of a recent case filed by the C^difomia Attorney
General's Office illustrates the tale of shame.

Wildiire Computer Collwfe was first accredited b^ AI05, one of
the national accrediting bodks recognized by the United States De-
partment of Education in 1985. In just 3 years, Wilshire's annual
tuition income jumped from ^proximately $2 million to over $7
million. Well over 96 percent of the Wilshire students all or part of
their courses with student loans and grants. The California Stu-
dent Aid Commiffii(m has not guaranteed over $28 miUion in stu-
dent loans to Wilshire students for 4 month to 8 month courses
that cost from $5,000 to $7,000.

According to court documents, Wil^re solicits students through
recruitere who advertise job openings, not education. The recruitere

ERIC >

earn $300 to $400 per head Wilshire also uses ads that claim, and I
quote, "In Just 16 weeks you can earn up to $15 an hour/'

In fact, few, if any, graduates earn ttiat much* Wil^iire ofTeml
an £ngliBh*as^a-6econd*Ianguaffe course in conjunction with its com*
puter course. Although students were induceo to mm up for l<mns,
the lESL claffl was supposed to be free if the stiraents withdrew
before the start of the oimputer course. Students who only took the
ESL counse ^re later surprised when lenders brought collection
actions for the so-called free course*

The statements filed with the a)urt show that Wilshire used an
improperly administered fourth grade level entrance test to deter-
mine is students it enrolled had the ability to benefit from the
course*

Declarations of former student's former school employees and
employers show the equipment used to teach was iiudequate, often
broken and out of date* If graduates were luc^ enough to get a
job, it was usually at a very low salary for a job that requirai no
special training. Neverthel^, before California instituted a pro
rata refund requirement, if students reali^ their mistake in en*
rolling at this school and dropped out after the first quarter of the
course, Wilshire kept aU of the tuition.

Like many vorational schools, Wilshire processed its students'
loan applications through one or two lendera, diosen by the school.
The students had no contact with the lender. The only knowled^
studente had about their student loan obligations was what Wil-
shire told me.

One court docim^ent shows that a number of students com-
plained to one lender, the Bank of America, about various misrep^
resentations, including that the ESL course was free, but B of A
continued to loan to Wilshire students for many more months.
Needless to say^ th^ students who did not receive an adeauate
education or a iob are still facial with paying off thousands or dol-
lars in student loans.

Wilshire is just one sad story in the tra^c saga of vocations
school abuse. I have been informed that vanous law enforcement
agencies have filed or are investigating cases involving ill^al prac-
tices of vocational schools affecting more than 100,000 current and
recent studente in California alone.

In addition, I have personally spoken to literally hundreds of my
constituente who have been cheated by vocational schools. I have
sponsored r^plar workshops in the public housing projecte and
other places m my district to help people prepare resumes, learn
how to seardi for jobs, and present Uiemselves in j<^ mterviews^

At these workshops I have asked how many people have been
ripped off by vocational schools. Usually, 60 to yO percent of the
workshop participante raise their hands. I have hundreds of ques-
tionnaires completed by my constituente that att«t to the unfair
recruitment practices, woddv training, inadequate placement serv-
ices, and utter failure of those so-called schools to provide any
meaningful education leading to iobe.

The shocking and unacceptwie experiences of my constituente
are hardly unicme. Just ask student, especially poor and minority
studente, in urban areas throughout this country. While these
abuses reveal a national tragedy, the Federal Government's role in

fueling this system of fraud and abuw is a costly national emba]>
raffiincDt.

Simply stated, the current syst^ois permits vocational schools to
exploit students and trmt them as mere conduits for the transfer
of tax dollars from the Treasury to the pockets of school owners.
We are not talking about petty theft

For example, the recent bankruptcy of Allied Education Corpora-
tion, which operated about 30 schools in poor urban areas nation-
wide, revealed that owners reaped about $900,000 in annual sala-
ries, and the corporation's assets included, for example, a Ferrari
Testarosa Wued at $175,0(K), two Jaguars, one Mercedes automo-
bile, a condominium, a 65 foot Hatteras yacht valued at over $1
million. Incidentally, the school paid more money in salaries to re-
cruiters than to teachers.

The owner of Wilshire Computer College, a four-campus oper-
ation in Los Angeles, drew $1.7 million in annual salary, approxi-
mately 30 percent of the school's income, leaving the school with
liabilities that exceeded its assets.

The owners of National Technical College, a two-campus oper-
ation in Los Angeles with affiliated schools in Chicago and Detroit,
withdrew $800,000 in just one quarter.

Vocational schools received 22 percent of the $12 billion in stu-
dent loan guarantees in 1989, but these schools were responsible
for 44 percent of the total student loan defaults. Nationallv, the
total bill for proprietary vocational school defaults exceeded $1 bil-
lion. In CeOi&mia, propriet^y vocational defaults in fiscal year
1989 amounted to $185 million, a 62 percent default rate. ^

It is no wonder that these astronomical simis are squandered be-
cavm the system does not provide adequate saft^uaids to asure
that only students with a demonstrable ability to benefit form the
education are eligible for funds; that only schools with a demon-
strated track record of success in educating and placing students in
jobs are digible to participate in the Federal programs; that all
students are given the opportunity to withdraw and receive re-
funds from the portion of courera not taken; that aU students are
not forced to pay for misrepresented or inadequate education; that
the Departinent of Education is given adequate oversight of the
quality of int^rity of schools.

It is absolutely incredible that a vocational school whoEW educa-
tional mission is to train people for jobs may obtain tens of millions
of dollars of Federal grants and insured loan f^ds and yet never
be required, never be required, to graduate any students or place
any ^udents in jdbe.

After an examination the issues by the Senate Fermai.v .
Subcommittee on Investicnitions, Senator Nuim ob»rved that, and
I quote, **What we have round is overwhelming evidence that Fed-
eral student loan programs are riddled with fraud, waste, abuse
and TpeTvamvB patterns of mismanagement''

We have to decide as a Nation whether we are interested in pro-
viding job training or enriching the few who know how to milk the
system. If the latter is our goal, we should just direct deposit mil-
liora into the wxounts of people who profess interest in operating a
school. We can avoid the inconvenience associated with deceptive

recruitment and shoddy education, and thereby, bypass harming
students.

On the other hand, if we are truly interested in meaningful voca-
tional training, the time has really come to change this wasteful
program.

Now, I can go into discussing propmals for reform; however, I
want to deal with two false issues frequently raised by vocational
schools in attempting to hold on to the free flow of student loan
dollars.

These schools claim thai, they are the saviors of African Ameri-
can and hispanic students who could not obtain any job training
without their help. Th^ schools attempt to intimidate political
leaders from curbing their abuses by claiming that any reduction
in money or increase in standards will create a system of educa-
tional apartheid, subjugating minority students to inferior or non-
existent opportunities and foreclosing employment*

This all^ation is just nonsense; it's a lie. The current program
only assurra that vast profits to the unscrupulous and broken
dreams to minority students. Just look at the news reports, the tes-
timony of students, the reports of the Department of Education's
Inspector General, and the few action filed by government agen-
cies.

Just look at the Higher Education Act itself and the Department
of Education's relations, which provide few, if any, requirements
related to the prevention of misrepresentations, the promotion of
educational quality, or any standards of school education account-
ability or performances.

The unfortunate truth is that, for many proprietary vocational
schoob, education is not the end product, but an overhead expense*
The more the overhead is reduced, the more the owner gets to
pocket. Vocational school reform seeks to channel money to educa-
tion and not to fancy yachts and cars. It's high time we contribute
to the edu<^tion of students instead of to their victimization*

The other lie is that private, for-profit vocational schools should
be subject^] to the same rules as public community colleges and
other similar institutions. Although all segments of education
should meet high quality standards, there are distinct differences
between proprietary and public schools.

A relative small percentage of students at public conmimity col-
leges participate in the student loan progx^ms. In California, for
example, lesa than 1.5 percent of community coll^ students have
Federal student loans, compared to 70 percent or more of the stu-
dents at proprietary schools*

Indeed, at the worst private schools, nearly 100 percent of the
students are involved in the Federal program. The public schools
are not guilty of the fraudulent enrollment practices epidemic in
the proprietary sector* Public community colleges in California
have an open enrollment policv, and accex shouldbe preserved.

The ultimate questions— where is the problem, where is the
abuse, where are the migor defaults, where are the doUara being
Iwt— all 1^ to the same answer private vocational schools.

I want to highlight a few of the propraals which I have made to
the committee staff to curb many of the problems. But, Mr. Chair-

ERIC

man^ instead of lioing that, I have submitted dome of the proposals,
and I would like to answer questions*

I know that my tratimony may be shocking to some of you* and
particularly to those of you who kind of warned us in advance that
you feel very strongly about your support for some of these private
postsec^ndary schools.

I have deep respect for you and your experien<^ and respect for
those schools that offer real education and jch opportunities, but I
want to tell you, and I will bring to you the documentation. I have
been getting students to document it now for almost 3^ to 4 years.
I have boxes of affidavits that ha^ been filled out about the fraud-
ulent practices in the ^th Coi^ressional District alone, some of
whidi I have cited to you today.

I welcome the opportunity to be here with you today and wel-
rome any questions you may have about my t^timony about any
of the proposals that I have offered to you for consideration. Thank
you very much.

[The prepared statement of Hon. Maxine Waters follows:]

Mr. Chaimn llMbers ot th» €!«nitt««i

n» tflvtriet; that Z n^WMnt U Ipontud In t2» south cantral
portion of IM IMlM. MMt of msr eoratlti^to oro ^rican-
lUBOvioiB mA Viopoiiio» Mmy of tha mro dooporfttoljr looking for a
bottor lifo. DMV AM to aAIovo drou by folloving

tin HMTioan v^s oditoatlonml odvMOoaoat Voiding to jo)>
oMpwtimltiM ioMi^iif tQ oeorwale bottorwMit.

miilo ommso ond tto aMrlom poopio hava trlod to nolo thas
«4 alUiOM Ilka tbas throo^ioitt tlio oatimi aohlara t&at draaa,
foot feott artlata hw torn abio to oKploit tto liopaa of aamaat
otuttota ana pookat aiuima of tax dollara thMi^ tka oporatiM
of poorly inm and ^tao otttrl^it trau^oat vooational aonool

MmoM by privat## tw-pm>f it ^ooatimal aoboola hava
not mly a natloMl OMiidal iKtt a natloBal traffod^* Many of tbaaa
Mtoola anttoo itvdaiite to aami baaod on wlalMdinff. If not
eoiplataly falaof sopr«Mntatim» Many of tlis attttfaata find that
tte training oar satarlala pxovldad axa inadagttata# If not
o«9lataXy •aaninglaaai that notantial at a living vaga ara
not avaiuhlo at ut f»on aaMatlooi that avallahlo attcd) aa
in tha aaoarity guaM f ioldf do M« ramlm anr a<lvaiioo training or
awMrianeai or that Inadamato training Moaivod at aoboola loaa
not gaallfy atodanta to oMain or rataln aapioyMnt.

An oMMla of a rooant oaaa f ilad hy «mi CaUfomla Attomay
Omaral's offloa ilinBtrataa tba t^o of ahana.

«iUbi» ooapoter ^llaga vaa f l»t aoosoditM hy kum, mm of
tha MtiOMl adOMdiUng hodiaa rMa^nisad hy tha v.f. oapartMnt
of Mwatiaii^ is lff»« Jii juat thm fm, Miahlra^a annual
ttltim InoGM ^opad frm apprndBataly 13 »lUlen to omt f7
aUlion. MU owar §5 pamnt of tha nflahiro atadanta flnanoad

■Mtb to tltht MBth oowm tbmt oast fttm |S«eM to ft,9W,

AooradiiM to oeurt deeqamto, wiMiix* wlloito •tnOMta
ttaxouoh rwmtitovo ite ■tfvortla* job ^^oftiiia, sot •ducctlon. Vho
roanUtom oimi |tpeiwj4Mjp«r teal. Mloain aIm mm odte tlwt

dftte, AOT xf mn fOB out nn sr id tu/ion.* m ttot,
foiff If wft ffr«A»teo MRi tlMt aooh. WiliA^ oftorM on
■agUob-Moa-Meood-laiifaogo wofm in oonjwiotlm with ita
omwotor ooosM* AltMagh otodtnto vmm Indooad to tian up fsr
lonm, thm Itt oUm vw ■uppo»«d to Im fvM if stttdonto vlthdvow
boCera tto start of tto e«vat«r couroo. Stodanto vbo only took
tto wn oottrto iMT* latar aopxiaad irtwa toouffbt oollootlen

AotloM for tto ofraa* oottraa.

ERIC

TM st«twmt« tUmi with tUs oourt ahw ttet trilshlm um4 m
imrwwly tdslnittttratf fporth grate XwqI mtnnM tMt to
^^^M»lm it stoAMt* it «auroilad hmA tim ^lity tc tenaf it rron
thm MiTM.

PMlmtlOT* CMT foiTMr atttteiitSi tormmx soMol^M^leyMS Mtl
•uXoMn sMv t)M tquii^mt uMd tP tuctn wu ioatefuBt*, often
ttokm via ottt*^-tet#. If grodMtM if«r» mom^ to 9*^ a

j^, it ifw WMlXy At ft lov Mimry for • th«t roquirod no
meoltl tnittinff. iNrvortkoloMi bttwo Collfonim iMtitutod o
HO-r»to votmd MqoiroMiit, if otateito rooXitod tbolr viotoko in
milling at tbio otfiooX ond dropped out efter tbo first ^uerter of
tho ooyxM, MXthiro kopt oU of the tuitionl

Like Mmr vooetioMX odMoU, iriXelitro prooeosod ito otutente^
Xoen ^vlioetlone tlumiQli oar tw XoRdero# oftoMR by tibo mInmx.
«io etiideato tad no omteot with tho loodor. tno Mly kmnriod^a
otadeato hod ebout tbeir etttdMt Xoen ^igetiona veo idiot wiloUro
told tlm« 000 eoort t^wmnit Aom ttet o nnbor of etetento
nomrtolBOd to one lo^dor. Beak U toorloo, obont vojriooo
Aion^KOMBtetioM^ iiwXodino tbet tbo ML cmroo veo fipoo^ but 8
Of b oontinoed to ioen to Wilebire ototento fmr Mby omo jiontbe.
Moodlooo to eey tbMo otudrnto ebo did not reeeiw on odooueto
oteMtien or o job ore etixi foo^ vitb peying off tboiwente of
delXero in otudoot loeno.

wilAiro io f»t 9m ood mtosef in tbo tregio *eogn of
voootionel ooboeX u«eo» Z bevo boon infoned tbot verioiio lew
mforoonent egonoioo bew filed or ere invootigeting oeeee
involving illogel preotieeo of voootionei ooboolo of footing nore
tbon l«e#goo oommt end sweat otudeato in Mlifomio alone.

In Hdition# Z baro pMroenally opdken to litorally bondsoda of
ny ooootitnrato vbo bavo ban obeeted by vooetional ooboolo, x
bave oponooeod rognler imMMpo in tbo bouoing projooto and other
pleoea in ay diotriot to help pe^^ wmpm rMoneo, loom bov to
MOMb for jobOf and pnoont tboneelineo in ^ob intorriom. At
tboM imftobona^ z baw Mkod bev new pe^e beve boon •rimed

off* to fpoauonel mtnooi^. tteoaily iof to m of tbo oori&op
partioipibte reioe tboir bante» z bavo fauudr e Ja of gooationneina
oonplotod by ay oonatitnaato that attoat to the mf eir rooroitMnt
prutiooOf abMdiy tnining, inMegnato plaoMeat ewrvioeo, and
utter f alliao M neoe oo«oelloa edhooia to provide eiqr soaningfttl
edooatioQ loedino to 4obe»

fbe ^looking obd unoooeptable o^erienoee of ay oonatittsenta
are bertf^ oaigpo. Jvmt eak atodaata^ ea p eo iall y poor and ninority
etttdentoi in nrben ereaa tb r o u g b o o t tbio oooatry. bbilo tbeao
aboaea ravMl e national tn^|edy# tbo federal g o varnn ent^a sola in
fMling tbia ayatan of fraud and ebuee io e oootxy netioael
eoberreaanont.

ERJC

•Iqply •tatodf tha oumnlt m^fmum psraits vecatiPiui^l oohools
M MDlolt stodmto md teMt thca mm mm eondulta for tiM
triMm M tM tfollan CMi thm TTMMry to tDi# pookvta of ochooi
mnmn. M cro not t«lkiii9 About potty thoft^ for oxovlo —

« fHo noont banksntoy of llIio4 S^atlm Corporation « ^leS%
opmtod about ip ftfubu in poor ittbaii aroao naciomido, rovaaiod
t&aft tbo oKBon roapoA aboot IffMfOoe in atmual aalarioo ana tba
oorpwatioii^o aasoto laeloM a rorrari Voataroaa vaSMd at
fi»,099r 1 ngoar and % n arooJ oo aotoa^iw. m c o ndo ai n iuia^ and
o «i foot lattarao yaabt vwlwi at ovor n sililon. Xneldmtally,
tbo octeol paid MM matmjt in oalarioo to rooraltoro tbaa zo
taaoboro*

a Oa ovMff of wUoblxo o^putw oolloWf a four-oaiq^a
^^^atioa In xm Aovaloo. 4twm |1.7 aUllm in anmiAl oalary.
ofl^iBatoly 99 poroant ^ ttw oobool^o inooM, ia«vlag tba oohooi

idilb liabiuiita tbat osocodod ita aaoatoi

» 9110 oioiaro of Mtlonai foobnioaX coUogo, a

ivrntiao ia too juifrtoo vitb aff illatod oeboolo in cbieam and
Potvoit, v&tMcw ftoe^OM la jwt ono fwrtor.

Vbmtioaai poooolo rowivod lat of tbo 9^3 Mllira in otodont
lom ooarmtopo in ifta, bot tboso ooboolo wra roopoMibio for 44%
^tM total ptottoat loan dofavito* XatiooaUy^ tbo total biU for
mnriotarr miMmai aolMl dofanitp ainaodod |i bUiios. xn
callforaU^ prnrlotanr weatioiial oobool daCaolto in f iooai 1999-
99 aoaoobtod to fiif pmioa — a «3t dofaait ratot

, to no jwad ai r tbat tboaa aatroimdeal aaaa aro aqoandarod

bamitao tbo oyotas doao oot provlda adaqoato oafogoarda to aaaura

* »tiidmt« with • dnoMteBliU UDillcy to tomaflt tre»
tiM • A ifwt tion «ra •lifiM* for funds.

noUy tunda tot tte pmrfiiaa of ooumw net takn.

■ m tWdttrtto aro safc f ereofl to piy f or aiaroiirooantad or

■ «>• »»P*rt?»« ft Sftaeation la «l«on adaquato evoralght of
tfta «aak.>y and tirtagritj of ooheolo.

It lo ibaoltttoly inorodibla tbat a vocational aohoel idioso
od u o a t i O BdA siaaioft i« to train paopla for jetsa nay obtain tona of

ERIC R2

niUimi of dollars of f«d«nl grants and inaursd losn funds and
yst afSBC tm rsonlrsd to tfradttato any studonts or piaes snv
stttdasits In jobst

Attsr an Ma»iaatlm of thm immvm by ths Sanate Mrmansnt
iuboewaittsa on Xn^mtlutions, amator Umn otaarvsd that ^What va
havs fowd is ovorvholslnf ovidamso that fsdaral studant lo^n
^roarsBS ara rlddlad witH trmM, vssto, abusa and porvaalva
l^ttaraa of clamna^M^Mnt."

Ws have to teoida as a natlm irtiathor vs ara intaraatad in
wovidlng job traixdim or onrioblnf ths fov who know hov to silk
tha a/sta». Zf tha xattMr im oar goal, va sboald just diraot
<^»flit Billions into tbs oooomts of paopla vho i^ofass intarast
in oporatiM a stiiool. Ifs oonld avoid tha inronvanlanca aasoelatsd
with dsoaptivo irsonitimt and Ittioddy odwatlon and ttairoby l^yposs
haraing studants*

on tbs otbar bandi if va ara truly intarostM in aaanlngful
yooational trainlAf # tiis tiaa hss mm to ebanfa thia vastafui
prograSs

Bafora briaf ly dii^wsiagr proposals for rafora, i wnt to das}
with tw falsa israss f r squw tay r«isod ^ vooatimal oohools in
attaapl^iag to bold on to tbs fkaa flov or st»dant lom dollara.
Stiaso iMseols olais that tb«r ara tbs saviMS of M rioan-Asarican
and Uspaftio stodaots id» omld not obtain any lob trainiMrvitttatst
tboir fealp. «bwa sobools B^^mm/t to intimi«ito political laadars
firm otirbino tba atasos fey fflaialng that my rsdootimi in nonsy or
iMvoMO ib standards itu orsata a systm w odoostional apartbaid
sabJogatiM minority st^tants to Infarior or non^-sxistant
adsoational oj^mtisniiiaa and foraoioaing aapieyBsnt.

Aia alla^^tiOD is not jttst nsnsonsai it ia a lia* Tbm
ourrsnt pro^sa obly sMBrss vast profits to tte msoni^oos and
broksn <teMas ts biimritf staasnts* Jtist look at tba nam raports^
tba toatiBany of atodants, tba nvorts ^ tte p^artamt of
IdsraUoo's Saapaetor Omoral, and tba fair aotiona filad by
ooMrnaant rngmeMmmw Mat look at tba Sigter Steoatioa aot and tha
Dapartasat of fdaoatioa^s ragnlatiofta ifliieh pravida fav, if any,
raquiraaanta ralatad to tba prsPMrtleo of miaroii^aaontationa, tha
proflotiOA of adorational gwUtr, or aiqr standarda of aohoo]
aduoatianal aooooataMXity or paKfaraaMa.

tba unfoitunata tmtii ia ttiatf f M aany prepriatary vooatiml
aahoola^ MMMtian ia not tba and prodoot Mt an ofwbaad as^anss^
tba wco tba o vaiiiaad is radDoad; tba wra ths ownar gata to
pookat* Vboatiooal aabooX vafors MOks to bhamal wnay to
adoeatiro aad not to f aaep yaobts and oara* Zt'a bigb tiM tbat ya
eontrikota to tbo odoeatim of atodants iastsad of tbair
viotiiiisationt

Ttw otbor lim in that n^ivrntm, for-profit vocatimial aetkoolA
•ImiXtf be suMsotad to ths sum rulas mi public ^unmlty coIImpb
«nd «t)iMC ■iauMT institaUens. AlUtet)^ all M^Mnc* of ^icatien
•bmild aoot Mob quails atM^avda^ th«r« ur« 44»tine« dlffonoMm
botMM proMMtMry and pnblio aeteola. A ralatively aaaix
pMvmtmpa « atotenta at iMblie cmaranlty eoliagas partiolpata ia
tlia atedant loan pragsatra. Xn emlifomin, for axaiv2a» laaa tban
1.91 of eoaamity collaga atutenta bava fadaral atutent loana
eo^parad to 701 or xora of tba atudanta at prepriatary achoela.
Zndatd, at tb« verat prlvata a^tMls, iwarly loot of tba atudanta
ora involvvd In tlw zadaral ^omn. 'Otm publio aobeola ara net
gt41ty of tha fraodtdant anrellMnt praetioaa ^idaaie is tba
pgvfMUxyi ••Otoe* P«d»llc ceaannity colZaoaa in califemia bava
as ^pan ansollmnt polioy« and aeeaaa ah«iXd ba praaarvad.

fba vltlaata qnaationa " wbara ia tba preblaa# «haca ia tba
abuaa« vbara ara tba ai^er dafaalta, y/tmtm ara tba dellara toaing
leat all laad to tba aaaa antvari privata veeaticmal aoboola.

X «aBt to bl«bll9bt a fav of tba pmoaala irtiieb Z bava Bada
to tba oraaittaa'a ataff to euri» aray of tba preblaowt

i. A jwe^iatary voeaticAal soboel'a all^gbinty to

pavtieipata in f a^toval atiUtent aid prograM stould ba baaad on ita
cnpiiaaoa vltb atttta adueatim mrA oonataMV pretMtion lam and
aeoraditatlen atimdardaf fba OopartMnt of Bdtteatlon and oaarantaa
aoaiwiaa ■bfluM bav* tba ability to initiata adainiatratlva action
mdar actabliabad adiOniatratlva prooadaxaa to aodify or tanOnata
a Mbeel'n «mtimiad allfibility to partiolpata in tba fadarax
atndant aid profpnM if a ai^MOl failod to ^iply wltb tboaa
atandarda.

3. seboola abould not ba paxalttad to oparata a« nilla for
tba proeiMiBO of gxant and loan ftmdn. Batber, inotitoUona
•imild afiBMl to a bnadar baaa of ati^ta tban raoipienta of
finanoiafaid. avoid tba problan of aobooU vray^ on 81
adoMtlmaX boftoflta* tba ^tarana idniaiatratiaB liBita aehool
alioibilitr to aoboela ttimf no aora tban tst of tba atudanta
raoaiva Vh bwwfita. X propoaa a aiiaUar ragnicmant.

S. currant U« baa failod to aaattra tbat aabeela ara not aat
up for tbo pBzpeaa of Inodiataly »ii3ein(t tba fiaaiwial aid
■Spvstm, jatbeoffb tbo law pnrvidaa tbnt aOboola Mat ba in
Miataaea for tao yaara, tba piwriaion io a abaa protaotim. «ia
proviaioa ia aaaUy oixenwwitad ttro«qJi obangao In oww^;}? «2
oentrol, orMtion of nav toranehat for neainallyoatabliahad
inatitttiima, and dranatio obangwi in prooraM of inatmiticmor in
^oncTattttoita. for aniiplP* • « atodanta

tMt baa baan in axiatanea for two yoara can ba aold to an«r ownar
«ne eban^tba pregraa of training and anrelia intndroda or
SeuM»lda of now a^aanta. jatboogh th. inatltution haa no
taaai*Xanea to tba *»o« and pop" oparatien of tba pravioua two

vMrs, th» naiMlly traaafMnMd aohool !■ tnatad m if it mro la
MiUtme* for t«e yMr».

A voMtionU MOieel shooM not »• •liffibl* to pMrtiolp»to in
•tit«wt flnweitX •!« ml— it fcu hun In MUtwic* for K'^VfZ
uttdM> «io MM OMnomiip m« eentoel, hM net mtetwntiaUy ahasfod
vrosraa «f inotnetlMr and hu not aubotwtially In
•iso*

4. seDoelo otould oBtell only otttaanto with an atoili^ to ^
•BBMHfiaiy tnlnoA in ttoo eeoapatiena to wbleh • pcogrM of 'taOy

■ol»el>

5. Cewiaolcood roovuiton ototild bo taino4 or tho oflolaaim
stnotuvo alteQia bo contJroUod oo ttoat thoy do ,?fL*221«!2
inooaUv* to oaroU as aaity poeplo to tJioy oaa eajolo or oonniva
into •ifnliiv • eoRtnet.

t. inhonTa atmOA bo naai«od to dioeleoo oo^plotion and lob

romi««« to dliolooo iaf omation ooneotninf tli* otwtira

wjw •*^r^^ ^ ^ ovamato ttao olalM. and
hf go ointt o r o*

9. ViaanoiAl atandardo a&onu »o anhanaad and MBltm^to
aaaoro tbat vwattoBal aoMoU haw aafftotoBt
pceaiood tr^lBiM aad «» pqr rvSimta. I tevo pnrldoa tiia ataff
Sith dotei&od pcSipoaala.

ittidMto Bbeolil bo poCTittoa a rtHfft pwioa of ^tly irithin
StUnfiM omSIS artar tM Mant attaadod tba f itat olaaa.

OtttOf

■iimlftiTtfttlYt toKpayoxs vouM teaof it. Stntenta imodrpp ont
h.f o«l 225!5S'a«?3SS^ lifcoiy to dofault oa •S*"***^
if r!^lSFwS?i«i! fw S poirtiS of tho oooroo oot^t^wi , »o

ERIC U.}

finaneial burdan to tn* fananil program in tlM avant tha londar
sakaa a elais aftar default.

in additlonf a fail, pro taea {>oiioy foiiova tha axaivla of tDa
vx odueatlonal toaaaf ita progras for nnasoraditad seteala. in liflbt
of tlw fai&itra 9t aMaredl«ln« ageiwiaa to aa^pwtoly evaraaa
vaeational Inatitutima, a pre rata poXioy for tlx prepriotary
voeational aeheela la ai^repriato.

10. Bom atandarda for yaxferaanca ana aoeowtabllity abeuld
ba iBoaatf on veoati«Mil areola. Zt la aa ai^lllng aa it la
aa t oni ah i ng titat ^anrlatary voeatlmai aeboola naad net aatlafy
any parfonunes ataniartt. Tteeratieally, a aehoel eould no
^radwtaa, aoal4 bava ^revitf^ no tralnuif Mtually leading to
aapleyaMst for ita atBtenta, and eoald i»iiaUialma eontinua to ba
allgibla to partlelpata in tto fadaral loan and grant preoraaa.

vooatiosaX areola ba^ a uniqua Blaaien of providing
intosaiv* ad tt oat i an and training la a ralativaly atert tan to fit
or ^ivara a atodmt fmr aaplcqraant. taliaela vbion do not
adaoMtaly pmen VlMald not Mntlmio to ba aliglbla for atodant
aid* California raoantly ad^tad a atandaztl vagturino tbat #0% of
atadanta aexplota ttelr oeuvaaa and tbat 70% ef tha gradoataa
obUin aipl^parat vitliiB alx aontba af onidaatlon. X veuld
raeoMsaad a alnilar' ataadard far tba fadaral pregras.

11. rvdaral finaneial aid prograa abovld net ba avaiiabla tor
inatrttotiaa in a fiald unlaaa a govasnaont apoi^orad aurvay
damateatta tba axlatanoa of • laxga anoaob daaaadla tJia rvgianai
jtt aarkat f «r tba vmbn of otadasta aaafc l P f training, sba aurvay
aboBM alao d a ao nat rato tliat tte pra^iinf vaoa vlll bo auf f loltnt
to panlt atadanta to aaot Uviag axMnaaa md rapay thair leaaa.
Tbla ^covialon arold at^ tba funnolling of aonay into training for
joba tbat do not ourrantiy aaclat or do Mt provida auffieiant
aamiaga to aaabla atadanta to r^ay tteir loana.

It. Tbo DapartMbt of Mooatioi abenld bo glvon tba aotterity
to mrlto off loana in tba ovMtt a oobool oleaw baforo otudanta ara
abla to ooaptato tbo prograa of training.

^•l^U?*^^ fttitlon Moomy Dad abeuld bo aatabllahad to
mwr atadanta in oUtoa i^eb do Mt bavo aueb a fund auffieiant
to eovMr looaaa froa olooad aobeoia. Am fond vould eovar tha
atudnt'a aoMoaie leoa ataning fnrn tba olooura of tba aebool up
to m aaennt of tbo total oliarga for tuition, •qnlpiMnt, and
Mtorlalo and Intoroit on tba aidant lean. Ao^mrvmid ba
baood on aaaaa a nan to laviad en a mall paroMtaga ef tiM tuition
^Mrgad by oohooli. flta Oqpartaant weultf a^ainlator tba fund and
daAiot tba raaacoMbla OMt adainlatratien ttom wmmy In tba
fuiWI. A alnilar fund baa baan aatabllabad in Califeraia.

14. h atudant wte la baraad ae a raault of any violation of

ffttfaral iw «2>1» to brim m Mtion Cor Appiropriat*

rmliU a&euld te tblt to wsMt th« «a«t dafesMs to th»
piyBMt 0f tte loan ttiat tlift student eould navo aoMrtod egalnst

fhiillc youi nr« Ctoairaan and cas^bM^ of tha cotunlttM, for
fivlng iBa tiM opportunity to txpraaa thaaa view.

47-081 0-^91 «

Chairman Ford. I thank you very much. Maxine, what time
frame were you talking about where the student had this short
period of what they thought was a free experience in school and
then later dis^yvered that they owed a student loan program?
When did tiiat happen?

Ms. Watbhs. Exactly when did it happen in C^ifomia? What
time period did it happen after the enrollment?

Chairman Ford. Yes. What year was that?

Ms. Waters. I b^your imrdon?

Chairman Ford. Wiat year was that?

Ms. Watkrs. I think we're talking about 2 years ago.

Chairman Ford. The reason that it's important to us is that we
made a change specificdly with that kmd of thing in mind in the
Reconciliation Act in 1989, which I assume would have become ef-
fective in 1990, which got us in trouble with all the people sitting
behind you in the front row. None of whom are from proprietary
schools, all are from our more resp^rtable institutions.

We said when you ori^ate a loan you have to wait 30 days to
get the money. Because if a kid walks in the front door, signs the
paper and disappears, we shouldn't be lending the money and get-
ting no ^iu:ation for it

We made that applicable across the board- 1 didn't hear from the
proprietary schools, but I sure as heck heard from all the other
schools. Nobody wants you to hold their money back.

But the kind of situation vou were d^cribing there is either
worse than you described it because it's a clear violation of the
F^eral statutes, or it was before the lending institutions were told
to withhold their money for the 30 days to see if the student was
actually going to show up and go to school

We tried, incidentally, in this committee to go 60 days, but when
we found out we were going to close every place from Harvard to
Stanford if we did that, we backed off.

We have, so fa^*, in adopting these tightening regulations in guar-
anteed student loans, tried to hold everybody to the same standard,
being conscious of the fact that if we try to apply one standard to
one kind of school and one to another, that we re going to be in
court and found to be discriminatory.

Do you agree that if we are going to tighten up the requirements
on guaranteed student loans they shoisld apply to people in all
schools, or just proprietary schools?

Ms. Waters. Oh, they should apply to aJ! schools. You should not
be deterred from having tight standards oecause somehow you may
harm the good schools. If the standards make sood sense, then ev-
erybody should have to abide by them and I think it would serve
the system weU.

I don't think we can continue to allow the ^stem to be ripped off
because somehow we fear that the good schools can't meet the
standards. If they're sensible standard^, everybody should be able
to meet them.

Chairman Foan. But, how about you?

Mr. Gordon. 1 agree with Maxine's statement, and I very sin-
cerely want to compliment her on, muticularly, what she calls the
two big lies and associate myself with her remarks.

Let me address the question you just asked concernmg should ev-
erybody be treated equally. Certainly, they should be treated equal-
ty, but I think we also have to keep in mind the fact that proprie-
tary schools enroll about 10 percent of the students, and they ac-
count for 50 percent of the defaults. Now, that's got to tell you
sonwthii^.

Now, I think that, potentially, what you might look at doing, and
what we often do as busin^men, and various people come into mjj
office and say, "Why are you putting additional regulations on us?
And I point to the S&L and other problems.

And what often happens is when you put Federal money on the
table, most folks are responsible. But you can have a few bad
apples that ruin it for everybody else. Most S&Ls weren't crooks; a
few were. And so what we as legislators wind up doing is overr^-
lating the good people in order to protect us from those very few
that can cause a great dteal of problems.

And I think there is a distinction between a school with a 60 per-
cent or percent or 30 percent default rate, and one with a 2 or 3
percent default rate. And 1 think that some of the regulations that
we have, the paperwork, things of this nature, you could have a
cut-off, maybe at 10 percent or something, of default rates. Those
below that would have to have less i»perwork than maybe those
over that amount so that you don't overburden the schools that are
doing a good job.

And let me say that I think we need to be doing more today than
indicting proprietary schools. But from the comments from the
podium, I've just got to tell you that maybe Maxine's and my expe-
riences are different. Maybe California and Tennessee are different
tlmn Pennsylvania and Michi^n.

But let me tell you, I have gone into these schools. I have pre-
tended that I was a student. I have been hot-boxed. I have written
an article about that in the imper afterwards. And when I ^d so,
students came out of the wall to tell me about problems they ve
had. Administrators of programs came out of the walls to tell me
how they were asked to misrepreMnt the institutions on a variety
of forms. And they finally had to leave those schools. They were
afraid. They thought it was immoral.

Again, maybe our States are different. But you can t just go in to
the showpie<» proprietary schools and talk to the students there.
You've got to look deeper. We have in our States, and believe me,
believe me, there is a problem. And it's go to be addressed or
you're going to kill the goose that laid the gwden egg.

And what I see coming down the pike is this: I think we all share
a common interest, and that is that part of the problem with the
default rates is that we're overburdening people that are low
income, at risk, and we're putting too much l<»n burden on them.

And one of the options is to provide more grants rather than
loans. You can't be providing these additional grants until you
clean up the ^stem. 'There is a problem there right now. ^

And you're going to have these folks come to you and say, It s
just a few bad apples. We're cleaning up our act and we need to
have a lai^r grant ^rstem. Let's don't burden these people with
loans."

ERIC f> '

And rU tell you what will happen is this: I^ht now I found that
many schools, their pricing system is the Pell grant plus whatever
amountyou canget for loans.

Ms. Waters. That's what it is.

Mr. Gordon. And that what you're going to find is theae schools
are going to change that. They're going to say, "Fine. We don't
want to be in the loan program." And if we might have had an 18
month pn^^nmi before to teach you to be a truck driver or what-
ever, how our pn^prams are going to cost exactly whatever the
grant is going to be. And they'll reduce their time periods.

Chairman Ford. You do know that we've put over 400 of thcwe
schools out of busin(^ in the last year?

Mr. Gordon. And there are many more that need to be put out
of busineffi.

Chairman Ford. Well, we'd like to see how many we're putting
out of business with what we've done before we tighten it up any
tighter.

Mr. Gordon. Part of that, Mr. Chairman, is why in the world do
we not apply the same standards for Pell grants as we do to stu-
dent loans? If it's good business to say that a school with a high
default rate shouldn't be getting loans, then why are we turning
grant money over to them?

Should we not overlap those same restrictions on these Pell
maxts, particularly since there is at»olutely no control over them?
You can not, you know, go to the Department of Education— if a
constituent of yours came to you and said, "Bill Ford, how many
students that got Pell Grants last year graduated? How many got
jobs?" You couldn't tell them. There's no record of that whatsoever
anywhere.

Chairman Ford. I can't tell them how many Ph.D.'s got jobs last
year either, Bart.
Mr. Gordon. Right. Fine.

Chairman Ford. That's the mystery of dealing with this thing
called education. You don't know when you've got a person educat-
ed. You don't know when you've given the right kind of education,
and ycMi don't know how much it should cost.

Mr. Gordon. But don't you think we should have some accoun^
ing? Don't you think we should have some idea? On a $5 billion
pr^ram shouldn't we have some idea?

Oiairman Ford. When the American people decide to make me
the Education Czar of this country, who can write the rules and
r^^ations without consultation with anybody else and with no
due process to anybodv involved, I'll take care of these problems.

Short of giving up all you would have to give up to give me that
kind of power, you ve got to expect something le^ than a perfect
syirtem. And you've got to make a trade-off— how much Federal dic-
tating do you want to do against how much freedom you want to
take awav from people. And it's tough.

Now, those of us who were here when this legislation originally
passed constantly had to rea^ure our opposition that we would not
empower Washington to do too much. And we filled the legislation
up with thou-shal^nots for Secretaries of Education.

And now people come in and say, "Why doesn't the Secretary of
Education decide what is and what is not a good school?" I've

ERIC

7:)

never met a Secretary of Education that I would trust with that
kind of power. And that's our problem. We have a system for all
our coU^pes and universitiM, and high schools for that matter, of
»»nt!ditation that's very much like me ^tem for the proprietary
schools. It's voluntary membership and it s supported by the people
who belong. It's not government

There's nobody in the government that tells the high schools in
l^nnessee what a good high school is. What's the accrediting
agency in Tennessee? Middle States? Southern States?

Mr. Gordon. The Southern Association.

Chairman Ford. The Southern Association. That's a voluntary
a^ociation. Middle States is the one that's in trouble because it
wants diversity. In my part of the country it's North Central.

And when I was a school board attorney, I used to wonder about
this. They're threatening to take away our accreditation. So what?
Well, the so what was that our kids couldn't get into college with-
out taking an entrant exam, even if they 8uc(»a9fully graduated
from high school. So it was a heavy threat.

And flien I started looking into it as a lawyer. How do you deal
with the^ people? Well, you don't because they're not a govern-
mental agency. You can't scream and holler under the constitution
that the government's doing something to you. It's an accrediting
agency doing it.

Mr. Gordon. But the problem, Mr. Chairman, is you have accred-
iting agencies that have developed a good old boy system. For ex-
ample, one of the accrediting agencies has a board member with a
school that has a 53 percent default rate that last year had $24
million in defaults. This person is on one of those boards.

So you have a variety of boards and if you are decertified from
one school, then they go to another accrediting agency. It has
become a good old boy system. I'll accredit you and you don t cause
me a problem.

Chairman Ford. Just like doctors and lawyers.

Mr. Gordon. That might very well be the case. And if doctors
and lawyers were given

Chairman Ford. You're a lawyer, aren't you?

Mr. Gordon. Yes, I am.

Chairman Ford. Well, in my State, on average, 35 percent of the
graduate of law schools ranging from the very top schools in the
country to some that are a little cheaper to attend, fail the bar ex-
amination on the first try. ...

That has been consistent since I took the bar exammation m
1951. There's never been less than 35 percent of the successful
graduates of law school who fail the bar exam.

Now, nobody says that the law schools are not doing their job be-
cause only 65 percent of the people who 8ucc»asfufly finish law
school can get a license to practice law.

Mr. Gordon. Pari of what's happening is the licensing process is
doing its job by weeding them out.

Chairman Ford. No. You can come back and take it agam. Some
do it two or three times. But the point is that, generally in educa-
tion, except for law— as a matter of fact, nobody can tell you
whether a doctor knows a dam thing when they get through vrith
medical school because they take the same test that a nurse takes

in my State, a general science test, which is passed by a nurse with
2 years of coll^.

And it's the same test that a doctor has to take. The medical so-
ciety decides when a doctor is ready to practice and when he won't.
Hie bar association decide® when rm not going to practice law in
Michigan anymore.

And we do it in all tJiese fields to this is not unique in education
to let educators make these decisions among themselves.

Mr. Gordon. But the distinction is that 10 pen^nt of all the
school students are going to proprietary schools, and they result in
50 percent of the defaults. That's got to tell you something.

Chairman Ford. Well, I don't want to denigrate community col-
lies, but you better make some more comparisons. Community
collies in m^or citi^ for example, like mine, are pretty bad. The
kinds of thin^ that Maxine claims that they are usii^ to sucker
young minority students and adults into the program— we're the
only hope they have got.

'ftiat part of it is bad, but the truth of the matter is that there's
enough truth in it to make it believable. And it's hard to break
through that«

I don't want to take any more time because I have other mem-
bers here. Joe Gaydos.

Mr. Gaydos. Let me ask my two colleagues this. Mr. Gordon, you
have made an underrover invest^tion at one school, right?

Mr. Gordon, At a couple schools.

Mr. Gaydos. A couple of them. Could you give me some back-
ground and the circumstances as to who had initiated it and which
agency did it, or did you do it on your own? Just give me a little
background.

Mr. Gordon. I was concerned tl»t, you know, that HEAF went
bankrupt because of the proprietary schools, the loans there, the
defaults. I was afraid that with those schools coming into the Ten-
nessee Student Assistance Association it might bankrupt our
83rstem and no one would have access to loans.

So I got out the list of default rates in Tennessee and was ap-
palled at these. And I took a couple of the highest ones. I went to a
school that had a 66 percent default rate. I did it on my own.

And I went in as if I was a student, and I was hot-boxed. I was
told I could get free monev. You know, it was simply an effort to
not tell me I had any kind of responsibility, but rather, to get me
to enroll there.

And I found out from recruiters in other parts of the State, that
recruiters are paid more than the instructors. Their purpose is to
get people in, not to educate them.

Mr. Gaydc^. Maxine, in your situation over there you

Ms. Waters. Before we continue, we're going to have to have
some rules I know that you will appreciate. If he is Mr. Gordon,
I've got to be Ms. Waters. You can't call me by my first name
unless you do it for everybody. Is that okay? I was going to tell the
chairman that, too.

Mr Gaydos. All right.

Ms. Watebs. All right.

Mr. Gaydm. If you feel better, that's fine with me.
Waters. Well, no. Just consistent. Y^.

ERIC

Mr. Gayd(». All right. Ms. Waters, let me ask you, on the par-
ticular school you referred to. how long was it in existence? was it
just a fly-by-nwht or has it had a good history, say, like a 5 or 10
year life period? Ck>uld you answer me that?

Ms. Waters. I think they've been around for somewhere between

5 and 10 years, yes. , t. , » w.^

Mr. Gayoos, Do you know aaurately how long theyve been

around?

Ms. Watebs. No, I don't know exactly.

Mr. Gaydos. Would I be wrong in a^uming that it would be one
of these newer schools?

Ms. Waters. You would be wrong in assummg that it s a fly-by-
night school and it is unusual rather than the order of the day m
Cdifomia.

Mr. Gaydos, Well, is it a national school?

Ms. Waters. One of them that I mentioned here is national.

Mr. Gaydos. Well, the one you were talking about, the one that
you had— and I'm not questioning your sincerity in raising your
points because from what you described, it looks like it's a pretty
raw operation. , , . , ,

But what I'm getting at is that we do have, and it s understand-
able, a lot of fly-by-nights that have come into existence the last 5,
6, 7 years, you know. For instance, I like to compare it with the
schools that we have in Pennsylvania, 30 and 40 years in longevity,
where they've been turning out secretaries, they've been tummg
out medioM aeeistants for 20 and 30 years. » , ,»

And those are the schools that I'm pretty familiar with. And I ve
always found ihat the newer schools seem to be, may be, those that
have some of those propensities that you described.

Ms. Waters. I see. Well, the only thing that I can sav is if these
schools fall within the category of new, as you describe as some-
where between 5 and lOn years, there's just too many of them.

I don't even quarrel with the default rate as much as some
people do. What I quarrel with are practice such as these phony
tests that, basically, ask "can you spell cat?" If you can spell cat,
you qualify to come into the prt«ram and you will benefit somehow
from training for something called a physician's assistant, kind of a
nonexistent job. , ,

I quarrel with the fact that some students simply go in and sign
the forms, walk through the door, kick back money, for example, to
the operators, and never show up for training. I quarrel with the
fact that you have computer schools in America with no computers.

I quarrel with the fact that you have rec uiters that stand m un-
employment lines and at grocery stores and welfare linra and hold
out that their schools are going to train people in 4, 6, 8. 10, 12
weeks for jobs that do not exist.

I quarrel with the fact that we don t have standards that they
must comply with before the Federal Government will allow ther •
to be in this system. , , . . .

Mr. Gaydos. Well, with your permission, 1 quarrel with those

fdcts too*

Ms. Waters. Why don't we do something about it?
Mr. Gaydos. I find them unacceptable.
Ms. Waters. Yes,

» 73

Mr, Gaybos. But let me ask you a question. We ve had witnewes
before this committee that have testified in the past on several oc-
casions that they don't want a comparison drawn between proprie-
tary schools and so-called career ^ool and the more formal educa-
tional institutions because proprietary Mhools, by their very
nature, will draw upon the student that is least capable of fmying
the loan back.

Now, I want to ask you the question. Do you think there's any
credence to that distinction, and should we be sensitive in that
area? TTiat a lot of students that go, for instance, to l^m the
wherewithal to be a refrigeration expert or to be a medical techni-
cian. It may be a 6 month cour^, maybe a year and a half course
because some of them are that long.

Those are the ones, many tim», that are going to be unable or
have been unable to make repayments. And there's always been
the argument that they should get grants rather than loans be-
cause of their background.

And we're trying to addrera their problems. May I have your
opinion along those lines. Do you think that's a valid distinction
that should be held? Is it something that we should pursue? Be-
cause you're quite critic^, And I'm not qurationing you for being
critical because you've experienced something that I figure is unac-
ceptable and I would agree with you is unacceptable is you have
that type of operation. Ihaven't experienced that in my iwrticular
State, so could you give me some advice along thc^ lines?

Ms. Waters. WeU, let me just tell you what 1 think about how
our system should work in terms of training; people in this country.
I think that folks who want to be trained m vocational schools, et
cetera, should have assewments. I think the assessments should
help direct them to the best training for them.

For example, if someone walks in the door and they can't read or
write, I think it is unconscionable to train them for something
called medical technician when they can't read what the tools are
that they're supposed to be using. I think they should be funneled
into another sjnstem where they can avail themselves of some very
basic education that will help get them to the point where they
could benefit from certain types of training.

Mr. Gaydcs. Well, do you have evidence and do you feel that
that's the case today? That that's occurring?

Ms* Waters. Absolutely.

Mr. Gayoqb. You do?

Ms. Waters. Absolutely.

Mr* Gaydos, Could you make them available to me? Fd be very
interested in having that.

Ms. Waters. Well, come on out to California. I'll take you by
some of them.

Mr. Gordon, Joe, could I quickly go to your first question?

Mr, Gaydos, Yes, sure. See, under the existing regulations, a lot
of schools can't do that, or aren't supp(»ed to. If they do do it, then
that is justifiable cause to clwe them down. And if that is occur-
ring, fine. But I'm talking about indicting the whole system, which
I resent. And I have made effort on my part to try to defend
a^inst indicting the whole system because you're not suppmed to
be dong that

ERJC 74

Ms. Waters. We're not indicting the whole system. And, you
know, when that is referred to as indicting the whole system, I
take issue with that. What I'm telling you is we have a scandal on
cmr hands. I'm part of the problem.

Mr. Gaydos. Yes. Aren't you part of it?

Ms. Waters. I'm part of the problem now. We have a scandal on
our hands. In my estimation, the scandal is as outrageous as the
S&L scandal that we were confronted with because we ure allying
thousan(b of unscrupulous private proprietary schools to np off Uie
government. They do not train anybody for any jobs. No wonder
the people can not pay the loans back. They don t learn anything.
They can't get any jobs based on, supposedly, the training that
they were supposed to get at these KhooM. ,

What I'm saying to you is we have an opportunity to make this
system better. I am not suggesting to you that there is no need for
vocational schools. What I'm suggesting to you is we do not need to
close our eyes and say, "Well, we don't think the problem is so
bad." The problem is so bad. i„ . . «r j »*

We don't need to say we can t do anything about it. We don t
need to pull in the good schools and say if we have certain stand-
ards we're govog to hurt the good schools and we don t need to do
that We need to take the blinders off, support education, attema-
tive education. Vocational schools, public schools, I don t mind.

But if you have standards, if they have to go through some hoops
in their State to comply with consumer and Department of Ekluca-
tion laws in their Stete before they arc eligible to be w)le to get
these Federal Government loans, I think you will see the default
rate go down. I think that some of the bad operators won t get a
chance to defraud the system in the manner that they re doing.

In a few years, you're going to look back at communities that
have received billions of dollars, and evenrbody is going to throw
up their hands and say, "See, we tried to help them. We put sonie
money into these areas and nothing happened. They didn t take ad-

^*wSr people are bemg taken advantage of. These people who get
up and go someplace and say, "I'm going to try one more time.
Even if Idropped out of school, I'm going to enroll m this school,
only to find that they are victimized by these operators are people
who will never make it in the system.

Mr. Gaydos. If I may, we're very familiar with those situations.
We've had some in our own Stote. Pennsylvania is not exclusive,
but I'm going to follow what the chairman has suggerted, or foUow
his lead. And he's very concerned and I am too, and I think the
committee is, that somewhere along the line the correction m
course, or the remedy, if pursued as some suggest, is going tohurt
some of the good authentic proprietary and career schools. That s
what we're concerned about.

Ms. Waters. It doesn't have to. I think that we can

Mr. Gordon. We're all going to be hurt if the system coUaMes.

Mr. Gaydos. Well, let me ask you one thing then, Mr. ^foroon
When you made that investigation, have you investigated other
schools, too?

Mr. Gordon. Ye», I have.

Mr. Gaydos. How many did you do?

ERIC

Mr. Gordon. I have. And what's happened is-~attd I think Mb-
Waters makes a good point. It's not just the taxpayers being ripped
on, you know, its the students that are being mistreated. And by
virtue of the coverage, if you will, that I received from some of the
things that I did, then students and administrators across the State
who had wanted to tell their stoiy started coming to me because
th^ thoi^^ht this is som^wdy that we can listen to.

GAp has gone into one of the schools now. You know, there are
other investigations as well. As a practical matter, most of the
horror stories we're talking about are ill^^. And you have regula-
tions that are supposed to stop that. But the Department of Educa-
tion is not overseeing it. And that's what's got to happen. Hiere's
got to be some oversight; the rules have got to be enforced.

What we have found, and earlier you said, are these new schools.
Most of them are schools that have been there for the last 5 or 10
years.

Another thing that I found, and, again, I can gii^ you the docu-
mentation on it, was that a nimiber of former employees from the
Dei»utment of Education, many of which were in enfon»ment, left
the Departmmt of Education, set up schools, and became partners
in schools that they used to r^ulate, and find all the loopholes.

And you'll fmd that they are in some of the worst default schools
around because they're takii^ advantage of the information that
they learned. Simply, we'w got to do a better job of enforcing it.

There really is a prc^lem, and it really is broad based.

Mr. Gatoos. One very quick final question because some other
members want to ask some qurations. Have you experienced or
have you visited or do you have knowledge of 2 year schools, 4 year
colleges, community coll^ra? Have you gone into that sector, too?

Mr, Gordon. We have looked at those rates, and quite frankly,
^u know, with limited time and limited resources, most of those
mstitutions have a 5 percent or 1^ default rate.

Mr. Gaydos. Well, I assure you there are many of them that
don't have that default rate. I can assure you.

Mr. Gordon. I'm sure. And, again, there ot^ht to be more than
just a default rate. It should be more than the only gauge. But we
don't have much else to look at right now.

Mr. Gavdos. Well, then you're suggesting, and it's probably a
correct suggestion, that since the proprietary schools or the career
schools seem to have the greater default rate, that that's where we
should direct our attention primarily.

Mr. Gordon. I'm saying that if you have 10 percent of all the
schools are causing half of all defaults, limited time and limited re-
sources would seem to indicate that that is where you spend your
first attention, which is not to say that's the only problem. But it's
certainly a place to start looking.

Mr. CrAYD(». That was the factor involved in your decision to go
into this particular whool and make an investigation?

Mr, Gordon. Yes, sir.

Mr. Gaydos. Well, Ms. Waters, is there any other thing you want
to add?

Ms. Waters. No, except to say that the sad facts about many of
these people who are being ripped off by these schools. The facts
are that they can not then avail themselves of rental assistance

ERIC

money and many other Federal programs because once they de-
fault in this area and they can't pay the loans back, it s a vicious
cycl%. Then they can't get any money to go to a community <»Uege
or to a public school; mey can't get rental assistance from Federal
Government; they can't get a whole host of resources that would be
available to them had they not defaulted. And I think we re domg
them a great disservice to allow ths to continue.

Mr. Gavdos. Well, thank you very much. Mr. Coleman.

Mr. Coleman. Thank you. Thank both of you for bringing to our
attention the down side of some of these programs. That is why I
mdicated earlier that there are some things broken that need to be
fixed. And I think your comments are ^ong those Imes.

Mr. Gordon, let me ask you, in your bill. H.R 2246, which makes
some significant recommendations and changes here. One of the
things we've found in the past is that while completion rates may
indicate to some that the course work was good or bad and the
quality was good or bad and what have you, we also have this phe-
noroenon of the nontraditional student who may want to go back,
for example, to a community college and take a course or two or

three. ,

And I know that in your course of study completion rate that
this is going to be an identifying factor for purposes of ewluaUon
and accreditation. And I wonder how any suggestions— I think you
undeiBtand that— how we might be able to rea«nize this phenome-
non and at the same time deal with what I think the thrust of
what you're getting at is? , , . . ui

Mr. Gordon. I think the way you do that is have reasonable
thresholds. Certainly, a school in an inner city, like here m Wash-
ington, DC, teaching the same course as a school in Michigan, Vir-
ginia is probably going to have a lower completion rate, and a
r;gher default rate. And I think we have to recognize that.

But we have to have some kind of bench mark. And I think by
using default rates, and by using course completion rates, and
usin^ job placement rates, it gives us more bench marks to start

But! think the important thing is, you don't say, okay, a 5 per-
cent level. Certainly, when we passed legislation last year, that
said that a 35 percent default rate would be the demarcation Ime,
that was a narrow threshold. And by using higher thresholds on
completion rates and default rates m this, within this 25 to 35
range, I think you take into account those schools that do deal with
the 80K»lled a^risk population. . ,^ j

But you get rid of these outrageous places with 50 and 60 percent
default rates and low completion rates. We've also got to do more
in accrediting. Do I have a better suggestion? Is this the perfect
way to do it? No. Do I have a better suggestion? No. And I haven t
seen anybody else come up with anything. . . , .

Will some good schools, some good students, be pnAably mis-
treated by this? Yes, But you have to have some type of system or
you're going to have many, many more students mistreated by
winding up at schoob that don't do the job. . ^ „ . ^

MrTcoLEMAN, Well, I think this is one of the challenges that we
face. And I hope that there may be some suggestions by those who
follow as to how we might be able to define your broad language,

ERIC

which I think we have always found to be good in spirit. But when
it oom^ to practical implementation, it runs into some trouble

Mr. Gordon. As a practical matter, I know I'm not a member of
this committee. I'm not going to be totally specific.

Mr. Coleman. 01- , I'm not putting you down for that.

Mr. GosooN. I know. So that's the reason I tried to be broad be-
cause vou're the ones that deal with this every day. You're the
ones that know more s^ut this than I do. I tri^ to give some
broad eateries, some broad ranges. And then I trust your exper-
tise in building interest in this subject to narrow that down.

Chairman Ford. Will the gentleman yield?

Mr. Coleman. Sure.

Chairman Ford. I should have made it clear earlier. We noted
Sam Nunn's report vesterday. He's an old friend of mine and I
have a great deal of respect for the way in which he goes about
investigatii^ anything. And we've invited him— there are three
hearings on this same subject matter — to appear but we've got a
time prdblem with his schedule. And if he isn't able to appear in
person, we will place in the record contemporaneous wiwi your
statements the report that he relea^. We don't want anybody not
to have the opportunity of every approach that's being taken to
airing these problems.

One way or another, the results of the Nunn investigation will
beojme a part of this record and will be consider^ along with
what everyone else says.

Mr. Coleman. Does the State of Tennessee, do you think, have
adequate safeguards in place for licensure?

Mr. Gordon. No. To be eligible for student loans and financial
aid, you have to have your State licensing, you've got to have one
of these accrediting afjencies give you accreditation, and then the
Department of Education has to sign off on it.

Many States are very lax in licensii^. I think there was some
model State licensing pn^rram that's been developed that Tennes-
see now has implemented. And it's something like you have to
have a $5,000 bond. You know, it's a very small thing.

But I think 10 percent of the schools, many of those fly-by-night
type of schools, were eliminated because of that. And I certainly
tmnk that one thing your committee needs to do is look at thorn
uniform licensing procedures for the States, maybe update them a
little bit, use them as a model, and potentially even say, just as we
say to States, "You can't get road money if you don't have 55 or 66
mile an hour speed limits/'

We might also say, "If you don't have at least a minimum
amount of State licensing requirements, then you're not eligible for
financial ai»istanoe." I think you might give s)me though to that
Ms. Waters. I think it's a good id^ I think the States should be
more involved in oversight and responsibility for the licensing of
these schools prior to the Federal Government allowing them to be
in the system. I think that would be very helpful.

Mr. Coleman. The administration is proposing something along
those State risk-sharing lines such as strengthened licensing proce-
dures and default trii^rs. So there's something brewing out there
r^arding that.

Thank you, Mr. Chairman.

Mr. Gordon. You know, after I introduced my Pell Grant bill the
administration included language that would eliminate high de-
fault schools from the Pell Grant program in their budget. It s im-
portant that on this Pell grant issue we put the same type of,
whether it's restrictions or guidelines, we have for student loans on
Pell Grant eligibility as well as we do for student aid. That's some-
thing the administration has propraed, and I hope this committee
will give very serious (»)n8ideration to doing that.

Mr. Gaydos. Mr. Gordon, did you state, for a point of clarity,
that 10 pen^nt of the career students are constituted in career
school of the total students?

Mr. Gordon. It's my understanding that proprietary schools
amount to about 10 per<«nt of the students in the student bank,
that they have about 35 percent of the grant dollars, and that they
amount to about 50 percent of defaults.

Mr, Gordon. Well, we'll have some witnesses that will be testify-
ing Eilong th(»e lin^. So that's your concept.

Mr. Gordon. That's my understanding, you know, in th(^ gener-
al, easy to understand figures.

Mr. Gayd(». Mr. Sawyer.

Mr. Sawyer. No questions.

Mr. Gaydc^. Mr. Andrews.

Mr. Andrews. Thank you, Mr. Chairman. Thank you, both col-
leagues, for your excellent testhnony. Congressman Waters, I
know, in point ten of your recommendations vou suggest new
standards for performance and accountability. And I know Mrs.
Roukema's statement talks about the fmancial standard of ac-
countability by reducing the percentage of the Federal guarantee.

I would ask each of you to rrapond to this id«u What if we were
to devise criteria which, somehow, fairly distinguished between le-
gitimate proprietary schools which have acted in good faith and
have a good track record, from proprietary schools who have ex-
ploited the process, much in the way that you've outlined for us
today, and required that for those who have exploited the system,
their students could not receive any further guaranteed student
loans unless the principcd of the school co-signs the guaranteed stu-
dent loan note as a co-guarantor? What would your reaction be to

that? .

Ms. Waters. Well, it certainly wouldn't bother me. I think the
school would go out of business. They would not want to operate.

Mr. Andrews. Is that a bad tiling?

Ms. Waters. It's a good thing. I am impressed with the idea that
you would be willing to separate in some fashion the good schools
from the bad schools. I guess you would have to Bet up some way of
determining if you have done this, if you have b^n, you know,
been filed on by the attorney general this many times, however
you would set it up to distii^^uiui them, if that could be done, that
would be wonderful that we could pull out the bad ones from the
good ones.

As far as signing on to guarantee the student loan, it sure
wouldn't bother me. It would be better than seeing operators with
boate and cars who have been exploiting studente maybe have to
put them to some good usi' when they come and get repossessed
when the student defaults.

EMC

Mr. Goux)N. My concern with that— and I would certainly like
to see the risk shared broader— my concern, thou^, is what about
the poor student, the so-called at-nsk student, the underprivileged
8to<knt, that even if it's a 95 percent loan, doesn't have, vou know,
maybe a parent at home or a friend that can sign that loan, then
they can't ^t it

Solthink we have to be concerned that those low ina)me folks
that can't find a guarantee or guarantor, we don't want ^m out
of the system. Ana so whatever we do in trying to share that risk,
we have to have a safety net, sorry to use that term, for three low
income students.

Mr. Anobews. Maybe one of the ways that we

Ms. Watsbs. Well, I thought the owners would guarantee it then.

Mr. Andrews. Ym. I'm talking about the operators of the school.

Ms. Waters. They would guarantee for those students that
you're describing. That's wh^t you said, isn't it?

Mr. Gordon. What I would say, again is that everybody's not
going to make it through. Pot»jntially, you might say that they
guarantee a 50 percent or a 35 percent or some default rate. In
other words, if everybody defaulted, then they wouldn't have to pay
the two or three that dia.

Mr. Andrews. Right.

Mr. Gordon. But once they reach a threshold of some figure, 35
percent, 25 percent, 60 percent, then money starts coming out of
their pockets.

Mr. Andrews. There are two premises of my question that I'm
interested in you evaluating. The first is that it is possible to fairly
distinguish between tiie good guys and the bad guys. And I pose
that as a question. I think it is. And I think there are many more
good Ruys than bad guys in this field.

And then ihe second premie is that the most effective means
relation is to give a vested financial disincentive for those who
would exploit the system. Make them pay for it, and, essentially,
give them a motive vested interest.

The other point that I'd make in response to Bart's point, is I
think that if we're going to evaluate accountability, more credit
should be given to a school that takes on a harder case to educate
and place. Clearly, it is more difficult to educate and place a 17-
3^ar-old unwed mother than it is a 35 year old electrical engineer.
And there ought to be some kind of credit given to a school that
takes on that harder placement case.

But I'm interested in any further thoughts you'd have beyond
today as to effective means of creating financial disincentives to
the operator of the school, the bad school, if you will, to exploit the
system.

Ms. Waters. Well, I appreciate that and I, too, would support the
idea that you would g)Ve credit to those institutions that are taking
on the greater share of hard to educate or hard to train students. I
think that makes a lot of sense.

You had one other point that you closed with. Would you repeat
that? ^

Mr. Andrews. Well, my initial premise was that it is p(»sible to
fairly distinguish between the schools that are Intimately trying
to educate people and those that are trying to rip off the system.

er|c SU

And, again, my premise is that the hiice migority of the proprie-
tary schools fall into the first category. They're legitimate people,
the ones I'm familiar with.

But is it possible to draw a fair and rational line between the
two?

Ms. Waters, I think so.

Mr, Gordon. 1 think there can be. But also, Rob, you re gomg to
have to keep in mind when you do that, there are going to be some
legitimate schools and some good students that are going to be cut
out And I think you have to keep in mind, "Yes, we're going to
have a line, and unfortimately, there are going to be some people
that are going to be victims of that line."

But if you don't draw that line, everybody is going to be a victim
because, again, you're going to kill the goose that laid the golden

Andrews. Well I think what you very eloquently have
pointed out this morning is that the ultunate losers in this system
are the students who most need the education. Becauyse there are
fewer dollars available, there is less credibility publicly for the pro-
grams. And in the individual case, individual families and students
are exploited by the p.nethical operators.

Mr. Gordon. You have to have a ^rstem where the instructors
are being paid more than the recruiters. And that is not the case
now with most. And as a recruiter told me from one of these
schools****""^

Mr. Andrews. Don't tell the NCAA that, by the way.

Mr. Gordon. They were bounty hunters and they received bo-
nuses for the students that came in there. There was no bonus to
the instructor for the students that passed. There was no bonus to
the recruiter for the student that got out and got a job.

And so I think you're going to have to look again at default
rates, course completion rates and job placement rates. And some-
where, in the wisdom of this committee, you're going to have to
draw some arbitrary lines that are going to hurt some people. But
more are going to be hurt if you don t draw that line.

Mr. Andrews. I thank you colleagues for your very, very inspir-
ing testimony. Thank you.

Mr. Gayd(». Mr. Roemer.

Mr. Roemer. Thank you, Mr. Chairman. I. too, would hke to as-
sociate myself with the remarks of the gentleman from New Jersey
up here and thank the both of you for your expert testimony, your
cogent insight and your overall analyses. If the chair will bear with
me, I agree with much of what you're saying. I understand the
chairman's concerns about getting at this problem without harm-
ii^ thwse many good schools that are educating people, and that
are helping those people that need help most.

From a constitutional perspective, 1 understand the chairman s
concerns as well. But, also, as we study this issue, we see that the
big losers are going to be all our students and all our people out
here fighting for more education dollars if wp don't clean this

system up. , t. « .

In Indiana, for example, the S&Ls are in pretty good shape. But
that does not distinguish the problem within our State for Ho(»iers
who are saying the government is not doing its job.

er|c S i

I think we can draw the same analogies here. Maxine pointed
imt that so many of these trade schools are computer orient^
withmit computers. I have read of truck driving schools witJtiout
trucks. We have 700,000 graduates a year that can not read their
high Khool diplomas and some trade schools that are exploiting
precisely thew people.

They are not nelning them, and we are not doing anybody a serv-
ice, not these people ^king an education and not our own efforts
to get money for education. The American public is going to come
to us and say, "Look, they are not spending the money well, so we
are not goiiw to give them any more across the board/

I would like to hone in a little bit more and ask ^u specifically
how we restructure this system not to penalize those good trade
schools that are doii^ the job. I went to a graduation ceremony on
Friday from ETO, the Employment Training Services, that gets at
these most difficult people to teach and to educate, people that are
28, 30, 35 years old, that have three kids, that have dropped out of
school, that don't have a GED.

How do you envision these trade schools operating in the future?
How do we restructure them is my first qu^ion. And then, sec-
ondly, Bart and Maxine, if we don't have this oversight at the
State level, how do we get the oversight within the Department of
Education to ctobb reference, and to keep better track of the stu-
dents, where they are and what they have repaid?

Wluit are some means by which we can manage and oversee this
process better so that we can argue in the future for more educa-
tion dollars?

Ms, Waters. Let me just start with— one of the proposals that I
have talks about only students with a demonstrable ability to bene-
fit from the education are eligible for the funds. I really do believe
that we should have aBsessments so that students are directed to
the correct institutions to deal wj^h their problems.

If we have students who are Tate, they should be directed to
the fi^jrstems that provide l^ic ev cation in order to teach them to
read. If we have students who would benefit from certain kinds of
technical training, then they should be directed into the systems,
be it vocational or public schools, that would train them in the
areas that they have demonstrated that they could benefit from.

And I think it is not too difficult to set up thrae kinds of s^tems.
Tl^at's one thing I don't think that we should have private schools
that give no te^ and say we're administering t^ts to see if you
can benefit from training* And the tests, in fact, do not test any-
thing. They simply are tests that ensure that everyone is eligible to
benefit from the training that they give.

Secondly, only schools with a demonstrated track record of suc-
in educating and placing students in jobs are eligible to par-
ticipate in the Federal pn^pram. If you have students who graduate
no one, who '^nnects no one with jobs, then those students, those
schools should n jt be eligible to particijpate in the prq^am.

All students are ^ven the opportunity to withoraw and revive
reftmds for the portion of courses not taken* There's no reason why
schoob should receive payment for students who drop out after
they've only been in the school for a few weeks. And that is going
on all over the rountry.

ERIC

ir they do not get to a certain point in that education or in thaw
training, then the school should be made to refund to the students
the dolwFB that they are re«»iving by way of student loans.

All students are not forced, are not fon^ to pay for misrepre-
sented or inadequate education. You have schools that have some
of the most ridiculous advertising that's going on in newspapers
acrom this country. And we read it, we see it all the time. We pass
right by it.

It is so outrageous until you lav^h at it. I call them all the Joe
Blow School of Computer Nothing because the ads are just abso-
lutely outrageous and ridiculous. And you know Uiem in your State
and your communities. You know that they're not training.

And when they have that kind of misrepresentation, students
should not be forced to pay. If they eay that, you know, W percent
of our students get jote nmking $15 an hour or more and uiey ad-
vertise that, we should bust them lor that lie if they can't prove it.

The Dei»rtment of Eduction is given adequate oversight of the
quality and int^frity of the schools. Now, this business of us not
being able to tell the Dejmrtment cf Education what it should do is
kind of outrageous. We are the CongreM of the United States of
America, public policy making body, that is suppraed to be able to
legislate in ways that will direct our agenci^ and deimrtments.

And I think we should get about the business of doing this in-
stead of feeling like we're victims that can't do anything about
giving some direction in this area. I would like to see State controls
prior to schools being eligible to participate, and I would like to see
the Federal Crovemment have wme oversight so that it ensures
th?tt all of the States have licensing requirements and other kinds
jf requirements that would make g(X)d sense before these private
postsecondary schools can even be considered. Those are just some
of the things that I would recommend.

Mr. Gordon. Tim, let me try to maybe be quick in a broad way.
Since weVe talked a lot about proprietary schools, let's define what
a proprietary school is. A proprietaiy school if a for-profit school.
And how are they making their profit now? They're making their
profit not be educating students; they're making their profits by
enrolling students.

And I think we need to change that system. You know, their
profit ounht to be based on educating students, not enrolling stu-
dents. Then you'll find that teachers are paid more than recruiters.
^ So what do we do? You know, you have to have some kind of
bench sisirk for success when it's over with. And once s^n, I go
Wk to completing courses, graduation ratra. I think that s a bench
mark. Getting a job, job placement, that's a bench mark. Paying
back your loan, that's a bench mark.

And so if you will use these bench marks, draw some lines, and
say, *'Okay, if you don't meet these rates, then you're not eligible
for the loans. That means they're not able to make a profit*
You're going to see the way they do business change. You're going
to see, S you can make it where to make a profit you have to edu-
cate rather tHan recruit, you're going to see them, as Maxine says,
they're going to test them when they get there. And they're going
to say. Okay, this person would make a truck driver, but to put

ERIC

him in hygienist school woiild be ridiculous. But right now, as long
as Fm getting money for whatever they do, why should I care?''

So if you have to educate them, they're raing to tay to test them
and place them in tJie b^ location. They re going to try to have
rounmlors to try to get them through Uiose courses. And then,
when it 8 over with, they're going to have someone to help get
them plw)ed in a job.

You ve got to make the for-profits make a profit on educating,
not recruiting. And that's how I think you'll change the i^rstem.

Your next question, as far as the recordkeeping system, the De-
partment of Education for the last 3 or 4 or 5 yeara has been trying
to do this. They just haven't fidmply gotten it done. And this com-
mittee is going to have to mandate it, provide the funds, do what-
ever is necessary, so that these universal lists are available where
you can plug in to the IRS and see whether or not these people are
tellir^ the truth on their application forms.

You know, there's a fellow in prison now in l^nne^ee that was
a recruiter at one of thex schools. He got into trouble for some
other reasons, but he's in prison right now. He said on the record
that the toughest tiling for him to do was to come up with false
names. It to the point where he was just writing people^s names
down and addresses. He had trouble coming up with new names,
and this was the hardest tiling he Imd.

You know, you're j^ing to have to be able to plug into Social Se-
curity numbers and make sure these people are real students. You
need this kind of a universal list.

I had a staff person in my office call over to the Department of
Education and just say, you know, "Do you have any record of me?
Do you know whether I ever had a loan?'' Well, he had one, but
they had no earthly idea.

Mr, RosMEB. B£ut, when you talk about bench marks and you
talk about graduation rates and you talk about getting a job, where
do we start to draw those kind of somewhat arbitrary bench
marks? You know, we surely don't apply that to Notre Dame in my
district or St. Mary's in my district

Ms. Watkbs. But you do it with JTPA.

Mr. RoKMER. Pardon me?

Ms. Waters. Job Training Partnership Act that operates in your
State for job training. You do have bench nuurks. You do exactly
that in the Job Training Partnership Act prc^rc, n.

If you take a look at that, and they have been working them to
make them more workable all the time, what you will find is they
put out requests for propc^als to those who want to do job training
and they have to do certain things before they are eligible for the
dollars.

Not only do they have to place the students— it s called perform-
ance based contracts— in some way, and I grant you all of what I
have seen does not in any way ensure that the way that it has
been structured is the absolute way. But I think that is the general
approach to dealing with how you pay people for what they do or
do not pay them for what they do not do. be you may start there.

Mr RoEMER. But, Maxine, where would you set those bench
marks? I mean, what kind of graduation rate would it be? Would it

be steeped? Would it eventiially be introduced over a period of
time?

Mb. Waters. Well, see, I don't know. But what you w>uld do, you
could start out with some very low rates. For example, if you have
no requirements and you have 10 percent of the schools participat-
ing or something in uiat amount who graduate no one, make it 2
per<»nt to start. Make it 1 percent. Make it 3 percent and you'd be
doing better than what you re doing now.

I'm not suggesting that it would have to be 75 percent. Since we
don't have any, lets start very low. Let's say 3 percent. I don't
think that's unreasonable. If they can't graduate 3 or 4 percent, I
mean, what are we talking about?

If we say job placement, Bince we have no bench marks now, let's
start with wmethii^ very low. Let's say 5 percent. Is that too
mudi to ask? Two perrent, 1 percent, anything. Let's show that we
want to do something.

Mr. GoHSON. Last Congress, or last s^on, this Congress made
an arbitrary figure of saying if you have a 35 percent default rate
or more over a 3 year period, then you won't be eligible for student
loans, and in 1^3 it goes down to 30 percent.

This was an arbitrary figure, but it was something that we tried.
And I think that what you have to do is, Notre I^une is not at risk
now because they probably have a couple percent default rate. If
they had a 50 percent default rate, then I think that you would be
takmg a harder look at them.

And I think that you're going to have to use expertise from folks
that know more than we do. And you're going to have to decide,
again, and I think, as Maxine says, let's maybe eir on the side of
too high and have a higher default rate, have, like, the 35.

Make those standards less restrictive now and see what happens.
And then start to pull them down if we need to. But somewhere
you're going to have to draw the line even thoiigh some people are
going to be hurt. You're still going to have to draw that line or
you're going to have a worse problem.

Ms. Watkbs. Just look at it very carefully. And, again, take into
consideration whether or not the institution is solely supported
with student loans. When you have a mix, or you can require a
mix. I understand the Veterans Administration does. There is some
information that leads me to believe that they have rules that

Some institutions rely substantially, if not exclusively, on funds
emanating from the Feoeral financial aid pn^ram to exist. Th^
schools tend to be mills for the processing of grant or l<»n fi; ds,
rather than institutions which have appeal to a broader base of
students than recipients of financial aid

The Veterans Administration experienced similar problems with
schools which were establi^ed principally to enjoy the fruits of V A
sponsored educationid benefits pn^rams. The VA limits schools
eugibiii^ to schools where no more than 85 percent of the students
receive VA benefits.

Mavbe we could propose a similar requirement. I have submitted
all of these recommendations that have been put together by a
number of people who have work«l on this for many yeare. I would
suggest you take a very close look at it.

Mr RoEMER. Again, Mr. Chairman, I would like to thank our col-
leagues for tiieir great testimony today. Last year we requested the
Secretary of Education to provide, or at least to look at and evalu-
ate, the measure of graduation rates of th^ schools. Maybe we
can^ as a a>mmittee, encourage an expeditious review and they am
get back to us with these measures and variables and bench marks
in the not too distant future.

Can you do thrX, Mr. Chairman?

Mr. Andrews, [prraiding] I can do anything, Mr. Roemer. I ap-
preciate your deep r^pect and affection for the Chair.

Mr RoEBiER. Mr Chairman, could you c^me to my district, too?

Mr Andrews. You want to win, don't you? Thank you very, very
much, Maxine and Bart, for very informative and inspiring testi-
mony this morning. We thaxik you for your time and effort.

We are privil^ed to Imve as our panel this momii^. And I
would ask each of the witn^ses to step forwani we may b^in:
Elirabeth Imhoh;, who is Director of the Consumer and Employ*
ment Unit of the South Brooklyn Legal Service m Brooklyn, New
York; Rrf)ert Atwell, President of the American Council on Educa-
tion in Washington, DC; Stephen J. Blair, Px^dent of the Nation-
al Association of Trade and Technical Schools in Washington, DC;
Arthur R^o, Chairman of the Board of Directors of the Associa-
tion of Accredited Cosmetology Schools in Falls Church, Virginia;
Marc L. Brenner President and Fiscal Financial Aid Director of
the Ohio Auto Diesel Tech in Cleveland, Ohio; and Robert B, Knut-
son, Chairman and CEO of the Education and Management Corpo-
ration in Pittsburgh, Pennsylvania.

Ladies and gentlemen, your statements have been distributed to
the members of the committee, and without objection they will be
made part of the permanent record of the hearings in each case.
We would invite you to, wherever possible, summarize so that we
may get on with questions as quickly as we c^.

we U bqgin to my right, with Mr. Knutson. Welcome.

STATEMENTS OF EUZABETH IMHOLZ, DIRECTOR, CONSUMER
AND EMPLOYMENT UNIT OF THE SOUTH BROOKLYN LEGAL
SERVICES, BROOKLYN, NEW YORK; ROBERT ATWELL, PRESI-
DENT, AMERICAN COUNCIL ON EDUCATION, WASHINGTON, DC;
STEPHEN J. BLAIR, PRESIDENT, NATIONAL ASSOCIATION OF
TRADE AND TECHNICAL SCHOOLS IN WASHINGTON, DC;
ARTHUR RESSO, CHAIRMAN, BOARD OF DIRECTORS, ASSOCU-
TION OF ACCREDITED COSMETOLOGY SCHOOLS, FALLS
CHURCH, VIRGINIA; MARC L. BRENNER, PRESIDENT AND
FISCAL FINANCIAL AID DIRECTOR, OHIO AUTO DIESEL TECH
IN CLEVELAND, OHIO; AND, ROBERT B. KNUTSON, CHAIRMAN
AND CEO. EDUCATION AND MANAGEMENT CORPORATION,
PITTSBURGH, PENNSYLVANIA

Mr. Knutson. Thank you. I'm happy to be here this morning. As
you indicated, I am Chairman and C^O of Education Management
Corporation. Our employee owned com;mnv, as art institutes in
m^jor cities throughout the United Stat^ which offer a wide varie-
ty of associate and baccalaureate d^pree pn^^ramts.

Our 13,000 students come from every State in the union and
from 50 forei^ countries. We have reciprocal credit transfer ar-
rangements with a number of coUespra and universities. And, in ad*
d^tion, our organization's post graduate activities have consulting
afifUiations wi^ universities in various cities in the United States
and in ^rope*

I am ^mpathetic to the statement made by Mr. Ford earlier
when he referred to his experience. And I would characterize the
art institute as profesional schools. And I, for one, while I'm a

Siduate of ihe university of Michigan in studies in economics,
ve a great personal conmiitment to the view that there is dignity
in all kmds of work. And I tiiink vfB need to keep that in mind as
we review th^ student aid programs.

And I thmk at the heart of thero hearings is the question of the
relationship between students and the Federal Government I feel
that we need to ask ourselves what should be the primary responsi-
bilities of the Federal Government and the States and the accredit-
ix^ agencit^ as they focUitate that relationship between students
and ttie Federal Government

And as some mv colleague on this panel this morning know,
we have strongly held view on that subject. And our organization
is very active m the proce» of reauthorization of the Higher Edu-
cation Act. We have networked among the various higher educa-
tion associations.

We have prejmred a document which you have and other mem-
bers have that contains 85 specific reo^romendadons for omstruc-
tive chan^ in tixe administration and delivery of student aid pro-
grams. ABd we're veir pleased that a number of our propmals
Mve been incorporated into the proposals that others in this panel
will refer to this morning.

The main point that 1 would like to make this mommg is that
the present system, the triad of the States and the Department of
Education and the ac^n^ting a^^ndes, can work. But the primary
responsibilities of each member of the triad need to be defined and
ne^ to be int^rated. And the members of the triad need to act as
partners with fuU and open communication. And that is not hap-
pening today.

We believe that there needs to be minimum Federal standards^
as has been indicated in the earlier panel. And we agree with that
for State licensing. And we think the States should be primarily re-
sponsible for consumer prota:tion, just as we feel that the U,S. De-
I^uiment of Education would be primarily rraponsible for ensuring
that institutions have administrative and financial caj^ility. And
we feel that the accreditii^ agencira should be primarily responsi-
ble for ensuring academic quality.

But those primary responsibilities are interdependent. Some
people will go further into other partner's areas, if you will But in
the document that you have in front of you and in our testimony,
we have ticked off various points. And just to h^hlight brieflv, the
minimum Federal standards for State lioensing, we think that is
essential if we're p^ing to ensure the importance of the State li-
cense as a prerequisite to Title kV eligibility.

And we feel that every institution in a State should meet the
same standards of consumer protection. And we have recommend-

EMC

ed that there be funding providi^ under the Higher Education Act
to araist those States that meet tiwem minimum Federal standards
in their State overdght responaibiiitim.

And we have also recommended that there be a single State offi-
cial diarged with coordinatii^f the enforcement of State licenmi^
requirements and regulations as it pertains to institutions that are
in the higher educabon progrenui.

We also feel that there should be minimum Federal standards
for the rea«nition of the r^onal and national accrediting bodies.
And we be lieve that those minimimi Federal standards should
cause the acxnrediting agencies in the way they address the academ-
ic standards of theii' institutions to get into such areas, for exam-
ple, as curriculum, as credentials of faculty, facilities and equip-
ment, student service and tiie like*

We feel that the membership in aorrediting agencies ^ould be
voluntary. And we believe that there should be a clear separation
from a financial and administrative standpoint between the accred-
iting agency and any related professional araociation. We believe
that the accrediting agencies tiiemselves should be charged with
oversight that goes be^nd what might be taking place today, on-
sight review in certain instance.

As to the Depaitment of Education itself, as it carries out its pn-
marv r^ponsibilities to ensure the financial and administrative ca-
pability of institutions that participate in Title IV fimds, our basic
premise there is f-urly simplistic. And that is you can not expect

And as has been indicated in the previous ^mel, part of the
problem today is that it has not been taking place* We have recom-
mended that there be program reviews conducted by the Depart-
ment of all participating institutions eveiy 3 years and that there
be recertification reviews every 5 years, that tiiere be targeted re-
views of certain institutions that meet indicatore such as high de-
fault rates, withdrawal rat^ of students, Idgh rates of faculty and
staff turnover, such as concerns of financiu stability or material
findings by the accrediting bodies or by the Statw.

In other words, for the department to take a more activist role
on that score. We think it's al»olutely e^ntial that the depart-
ment develop an institutional data base* There is something like
8,000 institutions that {mrticipate in the Title IV pn^rams today
that are not talking with one another* And, of course, plcdnly, the
members of the triad aren't communicating the way they nc^ to.

Essentially, the department, if I could put it in a single sentence,
needs to take responsibUity for Title IV funds. It's vital with all of
this, as I said a moment ago, that there be open communication
among the triad partnere of the Stat^, the Federal Government
and the accrediting agencies, so that the left hand knows what the
right hand is doing. Because, clearly, tiiese three bodira are inter-
dependent.

And Td like to just end with the statement that, in my view, and
I think there are othere on this panel and in this hearing toda^
that would ascribe to the view that we truly have a superb, diversi-
fied higher education system in the United States of America It is,
in fact, the envy of the world. Sure, we have problems, and some of
them are serious. But today, look at what we have. We have public

what

don't inspect.

and private institutions which offer education and training pro-
grams that are long, that are short, that are highly diversified,
that have a wide range of outcomes, and, in fact, do address our
Nation's human resource needs. . , . . ^

And I think we can establish the right standards, the nght rules,
the right gate keeping, the right enforcement, within the existing
system. That can be done.

What I think is going to be a harder challenge, and if I <»n make
one final pitch, and that is that unless we develop the political will
to look at education as the Nation's number one priority and as the
solution to our problems and as an investment with an enormous
future return, until we do that we are really missing the boat be-
cause it is something that needs to happen. And with reauthoriza-
tion, we have the opportunity to make a real difference in the
future of our country. Thank you.

[The prepared statement of Robert B. Knutson follows:]

TESTXMOKV OF ROBEIIT B. KNOTSm
C»AIIUCMI AND C^I^ EXECUTIVE OFPICEK
EDUCATION NANAGEKENT CORPCmATION

BEFORE THE HOtlSE Q)UCATXO»l AND XAB0R COMNITTEE
SUBCOVOnTTEE ON POSTSECONDARY EDUCATION

PROGRAM IMTEfiRlTY

NAy 21, I99I

Mr. awlrwMi and ««aber» ot the subcosanitt** on
Pestsscondory Wucation, I aa Robert B. Knutson, Chairaan and
Chiaf BxTCUtlva Officer of Bducation Kanaganent Corporation (EMC)
of Pittaburgh, Pennsylvania. Our BB5»loya«-owiBd ot^ny operates
The Art Inatitutes of Atlanta. Dallas, Port Lauderdala, Houston,
Pittsburgh, Philadelphia, Saattle and The Colorado Institute of
Art.

The Art institutes international servs 13,000 students in
associate and baccalaureate degree programs. Our students cooe
froB every state in the Union and froa 50 foreign countries. We
also provide postgraduate paraletjal training to students through
The Mational Center for Paralegal Training and its consulting
affiliations with universities in the United States and Europe,
our prinary mission is to develop huaan potential- our 1,800
faculty and etaff know that student success is everyone's Job.

1 appreciate the opportunity to present our raconunendations
for Inproving the prograis integrity of the Title iv student
assistance prograns.

The Title IV student aid prograas ware created under the
Higher Education Act of 1965 to provide flU qyal j t i rt StudgntS
Tflth nn fT"^ «T»nortu n 4tv to oursuw a postsBconflnrv ftducat i qn
rtgn ^T*"** *a»iiv fi p»»"ial Beans. Federal student aid
prograas have played a critical role in maintaining student
access and freedoa of choice in education. As we begin the

!)1

ERIC

procMs of r«ttUtliorisatioii« thm «ffiictiv«ntt9s ana Integrity of
th#M progrun will com under cloM ecnitiny.

We believe that tha baaic princi|>l«a of the axiatiny
pmpr^mM Bhould b« retalnyy and atraaythened . aa they have served
ailllone of oiir etudente %reXl« However ve ahare the view
•xpreaeed by others that atit»tantial refona is in order.

In our 85 recoanendationa for reauthorization! which ve have
already provided to tha subcraaittee and ere eutaittin? today for
tha record, ve have »ade a nuaber of proposals related to the
student eid program* In addition, we have addressed the
institutional eligibility end overaight responsibilities of the
Triad: the states, the accrediting agencies and the v,S*
MpartMnt of Sducation. Wa believe that th^ Triad avatem of
Qvaraioht can and aliould work, but only if the primayy
reaponaibilities and tha ^mAority of each of the Ti;iad part;nQye
are better defined and inte^ated. The Triad partners'
responsibilities ere interd»p«nday>t r each partner must carry out
its principal role fully in order to ensure individual and
collective success*

The Triad system suffers fron a lack of coamunigiii-ion. For
example r students have been hurt by school closings which night
havs been foresaen or even prevented if the Departoent, the
states, or the accrediting agencies had exercised their
responsibilities and informed the other Triad partners.

i7 ^

Thmrm im no Blnivtn faderal staiMlBrd for mt^tm regulations
and, as a rasult, riwyulatiiQns vary trpaandouslv from stata to
m^AjjI. Hany statas ai]^>ly 60 not allocata tha nacassary
rasmircaa to proparly ovarsaa thair institutions or to address
aarlous problass ^an thay occur*

The reoionAi and national accrsditina aaencisB have
dsvalopad a reputation for behaving li)ce private clubs that
protect their aeaberahip. This perceived conflict of interest
seriously thrastana the integrity of the accrediting process.
Accrediting agencies are increasingly driven by crisis
Mnaganent, in part because they have assuned responsibilities,
e.g. student loan default prevention, which they are ill equipped
to handle*

Due to staff reductions in the 1980s, the Department ot
Education does not have enough trained personnel with the
necessary expertise to oversee the approxiaately S,000
institutions that participate in Title IV programs. The
Departsent possesses a great deal of infonaation about eligible
institutions, but has not consolidated it into a usable .lata
base. As a result, it cannot identify schools which are
experiencing administrative or financial difficulties.

yhft Department of Educati ^n^R f>U9 i frt^^<^Y '^"^ certification
proeeeees era inefficient and overly dependent on pai^r
processing, in the past ten years, institutions have installed

wphisticAt^ data procMsln? syatttu. Collect iv«ly, they kmmp
tndc of himlrsds of thouMmSa of Btudants' detailed financial
recorde related to their pertieii»atim in the Title xv prograaa*
It ie unbelievable that the Department of Eduoation has not been
able to coneolidate inforaation on 8,000 participating
inatitutione.

In order to strengthen the integrity of the Title IV
prograes, urn propose the fol loving;

Eatablieh ainiaua federal standards for state licensing.
In order to assist states in their oversight
responsibility, create a new authorization under the

Biglur Mycattga tet.,to pggvide Waral fwda ,tQ .gtfltg8
that met winieiie federal standards for state licensing,
teend the Higher Education Act to include federal
statutory s^andqrds for the Secretary's recognition of
regional and natjpnal accrediting agencies , in order to
assure the integrity of the accrediting process.
Replace the Mat^oi^al Advisory Conmittee on Accreditation
anfj Institutional f l ^g^b^lity with a National Advisory
Committee on Institutional Qiiality and Integrity^ vhich
is representative of all types of institutions within
higher education.

Require each aember of the Triad to shar« informati on
regarding all final decisions and the final results of
any site viaits (with institutions' cosu&ente attached)
with every other Triad eember^

o 0 }

ERIC

. ft^Lrm ^hm n.<t. Di>artmiint of Bducmtipp to satal^Xish a
cmtral data Mm of institutional informtion.

^ OiMia tMm P^partMnt: ot Bducatinn to raf ora ita
•liaiHilit^v ami cTtiif icntion Procaas^

RatAbliah a alnala dafinit jQn "^"■t^<^ttf jpf^ of hiahar
t4 HCa^ ^Qn«* purpoaa of tha Titla IV prD^raM is to

aum>ort naady atudants in thair j^auit of a
peataaoondary adwation, ragardlaaa of tha govarnanca of
tha Inatitution or fina diatinctiona in program
objactivaa*

gar racPBg anda^iona mrm daaionad to rainforca, rathar than
Axpand, tha tiradit ioniil rola« at ^a Vriad.

Tha principal raaponaibility of tha fijtA&M should ba to
aaaura that conausars ara protectad.

Tha principal raaponaibility of tha aecraditinq aaancias
ahould ba to aaaura tha affactivanaaa and high quality
of tha aducation prograaa thair spools of far.

Tha principal raaponaibility of tha U.S. Dapartnent of
gducation should ba to assura that participating
institutions saet nac^asary adninistrativa and financial
standard*! .

ERIC

PrincitMil roltt. it i« vitial tJiat thw coMimicata vitA ona

Wa have an anorrcu* opportunity as va approach
raautliorisation of the Highar Education Aet« Wa naad to sake the
ayataa vorX for our atucSanta andr conaaquantly, for ou^ country.
With thia Comittaa'a Xaaaarahip, I as confidant wa vill succeed.

ERIC

Mr. Andrews. Thank you, Mr. Knutson. I'm informed that Mr.
Atwell has an earlv plane to catch so Wre foing to go out of order
and ask Mr. Atwell if he would tesUfy next Welcome.

Mr. Atwell. Thank you, Mr. Chairman, and wi^ apolodes to
my fellow panelists. And after I make my few brief remarks I hope
you will feel no disrespect if I have to leave. And I'd be pleased to
answer any written questions.

The testmiony I offer today is on behalf of the American Council
on Eklucation and 11 other higher education associations, and is ac-
companied by specific l^islative proposals. I would ask that my
previously submitted written testimony be made a part of these
proceedini^.

Federal student aid pn^ams have come under severe fire in
recent years because of the circumstance which you've heard dis-
cu^d earlier in this hearing. Now, fortunately, steps taken al-
ready by the Congress and the relevant accrediting bodies have
started us on the road to reform.

The high c<^ associated with fraud and abuse and defaults are
one of the reasons for the growing imbalance between grants and
loans in student aid packages. And, in particular, high default costs
have i^rained the ability of the Congr^ to provide sufficient
Pell and other grant funds to meet the demonstrated needs of stu-
dents.

Our system of higher education, generally realized as the best
in the world, is also unique in the world in a number of respects.
And for purpra^ of today's hearing, one of the most unique fea-
tures of tJiat system is that the monitoring of educational quality is
assigned to what Mr. Knutson referred to as the triad consisting of
State licensure and r^julation of the institutions providing the edu-
cation; voluntary accxieditatien and Federal pn^pram eligibility de-
termination; ana oversight.

In most other nations, all of these oversight functions rest in cen-
tral ministrira of education. Now, our decentralized system has
worked reasonably well in assurixig minimum academic standards,
but on the whole, it has not performed satisfactorily in assuring
good management and reasonable standards of probity.

For one thii^, State licensure and regulation has been most no-
tably ineffective because of understafHng, Uie dispersal of responsi-
bili^ among several agenda within some States, and the reluc-
tance of many Stetes to undertake activities which they believe to
be a responsibili^ of the Federal Government.

Secondly, accreditation, while well-suited for the determination
of minimimi academic standards, is, on the whole, ill-equipped to
deal with a host of management and probity issues which come
with the rapid expansion of enrollment. And that's been made pos-
sible, of course, m part through the growth of the student aid
^stem, which is lai^ly Federal.

The Congress has cfetermined that Federal program elimbUity
should be ^tennined through an arrangement whereby the Feder-
al Government recc^nizes and monitors the voluntary aonreditlng
bodies, rather than making individual determinations of which in-
stitutions should be eligible for Federal pn^rams.

While the decision to leave Federal program eligibility largely in
the hands of voluntary accrediting bodies is consistent with our

whole appnmch to the role of the Federal Government, there have
been dimcultira. Chief amoi^ them being the fact that the Dei»rt-
ment of Education's role, both in overseeing accrediting bodies and
in monitoring institutional performance vnih Federal funds, has
suffered from inadequate funding and management inattention.

And our specific propraals address all three 1^ of the triad. And
they do so against a Imckground of what the Congr^ has already
done to address the problems Tve tried to identil^. I would refer,
specifically, to the prohibifion on borrowing by students at high de-
fault institutions and reduced SLS limits tor students in programs
of less than 1 year.

In the area of State licensure and relation, we recommend
that the Secretary of Education be authonzed to develop standards
for State laws and policies which provide a more adequate system
of State licensure, oversight and a)mpliance. And these standards
shoidd be developed in cocmeration with the State h^her education
executive ofKcers and the States.

Wi^ respect to aorrediting bodies, the Secretary would be re-
quired to develop specific standards for rec^izmg accrediting
bodies for the purpc^ of institutional eligibility for Title IV pro-
grams, and we nave indicated what some of those standards might

Thirdly, we have a number ofproposals to clarify and strengthen
the role of the Itei^utment of Ekiucation in student aid programs,
including adequate staffing, performance standards for institutions
and others.

It is my personal hope that in developing performance standards,
and yon heard reference to performance standards earlier in this
hearing, special attention would be paid to such factors as high de-
fault costs, high default rates, the proportion of Federal or federal-
ly guaranteed funds to total institutional inrame, changes in insti-
tutional ownership, proportion of ability to benefit students, mate-
rial findings in audit reports and others.

It is my judgment that thresholds could be est^lished whereby
poor pemrroance on several of these indicators would trigger
clo^ scrutiny than would be the case for other institutions-

In arguing for th^ threshold indicators, Ym fuUv aware that in-
stitutions servii^ academically high risk students would be expect-
ed to have higher defeult rates. But I do believe that institutional
accountability would be strengthened through such standards.

And, finallv, we have some proposals on regulatory reform, chief
amon^ them Ming to extend to the Higher Education Act the same
negotiated ruleronking authority provided for the Perkins Voca-
tional Act last year.

Our prop^^als are designed to assure that regulations are devel-
oped in ax)peraticm with the higher education community. And in
summary, we believe that the combination of the proposals we are
offering will provide better ac^untid>ility, greater mtegrity and
lesser costs than would be the case in Uie absence of these meas-
ure. And in that manner, we will better serve our students, which
is the purpose behind all of our activities.

Thank you, Mr. Chairman. And I would like to be excused, if I
may.

[The prepared statement of Robert Atwell follows:]

STATCMENT
to the

SUBCOMMTTIEEON POSTffiCONnARY EDUCATION

cx)MMrrraE on emjCATiON and lab<m<

UNITOD STATES HOUSE OF REPRESENTATIVES
May 21, 1991

Robert H. AtweU
President, American Council on Education

On behalf of:

American Association of COTimunity and Junior Colleges
Anwican Associatiwi of State Colleges and Universities
American Council on EdiKation
Association of American Universities
AssociatiOT of Catholic Coltegea and Universities
Associatioa of Urban Universities
Cotincil of Independent Colleges
National Associadoo fts Eqnal (^^NVtonity in Higl»r Edncation
National Associatioo of College aiKt Univmity Business Officers
National Association of Independent CoUeges and Universities
Nati(»al Assn. of Schools mm* Collejpe of the United Methodist Chmch
National Associatim of State Universities and Und-Orant Colleges

17-088 Q-9\ 4

Mr, CbainniQ aad Membm of the SnbciMiiniittee:

On bdudf of auociitkms i^^iesaiiag ill tecton Americma
higher eiliicmtiiMi, I qqpcciaie this onKMrtoDity to fmseiit oor
rBcammeadaiioBS to improve the adminlitntira usd enhincc the
iotegrity of federal ttudeot aid programs.

To streagtboi prDgram iotegrity, two important issoes must be
dealt with during the leaulhorizatioa of the Ifighor EdncatiiHi Act:

(1) S^ons prc ^m i persist in Uie administratioa of Ae
progfams by the Educati<Hi Defmrtment, and in the Department's
shmd respMsibility with the states and private voluntary
accreditiag agenciei for (tetermining institutional eligibility for
participation in federal student assistant.

Lax administratioa ct Title IV i^grams which annually
distribnte some $20 billion in stndMt auistanw hu led to widely-
reported insteo^ 6t fraud and abuse, particularly in short-term
occupational programs which enroll a high proportion (rf low-income«
high-risk students. Soch instates have eroded public ccmfidence in
the programs, ahhoogh most institutions do a responsible jcb at
managing federal funds.

(2) Increasing statutory and regulatory rcquiivmenu ifiqx>sed
on the piograms to deal with management pnAlems at a relatively
small numbM of schocds has created a costly regulatory overburden
for the majority of institutions*

To address the fim isstie, we belteve it is vital to elaiify the
role and respoosibilities of the De^rtment^ postsecondary
in^tntiooa^ the acciedlting agevies, and the st^ in determinittg
eligibiUty for federal student aid pn>grams» iiui to strengthoi

ERIC

instittttioaal manasemeot controls and accountability. The second
issue miuires sevml steps to reform the regulatory i»ocess.

A riarifviny thg RgsponstbiUties of the Education Department
We arc encoui^ged that Secretary Alexander has moved
quickly to adopt a sweeping management improvement plan to
Tcfocus and restructure the Department's student aid programs. The
plan is based on the itport of an ED-OMB review team which found
the management cap»;ity of the Office of Postsecondary Education to
be inadequate* understaffed, and lacking the basic accounting records
required to fulfill its responsibilities.

To make sure Deoaftn w^t providf^i adeoaate stafftny of the
nturlftnt aid proprams jfl ?^f^ ^ recommend that a line item

he fSfftbHshed In its Salarieg an d Expenftes budget for administration
of Title IV prpyrams. This would make the staffing needs for proper
administration of the programs (including training of financial aid
administrators) a matter for formal review in each budget cycle.

We regommimd that the Department be rcQuircd to develop, in
conti^hatiAn with the m^tsecondarv communitv, oblCCtivC
performance fttandardt fgf administration and management of
Title !V propams. Such Standards would enable the Deparmwnt to
regulate differentially on the basis of such factors as the institution's
mission, program^ type of govei^ance, and administrative capacity,
and would include reliable criteria for identifying institutions which
are having difficulties in operating and managing the programs.

recommend that the D«^partment he required to
pstabitsh a systematic proyraiii for ovemcht of all institutions

ERIC

MfttciMting in Title IV promnw, incltiding periodic recmifleation
^viewf. Btsed im ttese oveisigiit activities, the Dqwtnmit thoald
prepare and disiribyte an annoal lepm evaluating the aatme and
extent of administrative and regulatory pr(rt)Iems and concerns
Identified in the {ffogramSt ami ttoir frequency by s^tor.

The Dgpartment ahoald also be raquirg^ \o ^fitfbl^jjh ^ gf t^^gf
dat^ baaa of institational infom^ation. to promote anifcmn repcming
and full inlegratira of all dau available from sources within and
outside the Department, inclmiing the Eligibility and Certification
Division* the Audit and Program Review Division, the Financial
Management Section, the Office of the Inspector General^ the regional
offices, the Veterans Administration, state agencies, and regional and
national M^crediting agencies.

Iq gf^ifition, the Department should be at^thorized ^ft regulate
»h*f*»'P*^ ^^'^^f^ th^t assume contractnal
responsibility for administration of Title IV programs. Third-party
servicers for institutions should be subject to control and audit
requiienwnts similar to th<m that apply to instituticms. The
Department should al»> be authorixed to regulate third-party
consultants on student aid matters, and to require satisfactory
performance standards f<^ consultants.

We also urge considerati(m of the Administration's proposal for
authority to provide conditional certification for a one-year period to
enable the Secretary to take timely actiim against institutiros with
no proven record of ability to ^Iminist^ fedmd funds.

1 n

ERIC

lo the last two yean C(»gicss has taken several steps to limit
fffognun abase and to make insiitntions more accountable for tiwir
managenwnt of Title IV programs, including a prohibition on
bomnving by studenu at high-default iastittttions (with appropriate
waiven fot initittttions with special circumstances), rediwcd SLS loan
limits few stmJenU in pn^crams of less than aa wademic year,
imposition of a 30-day delay in ii» disbursement of guarantee
loans, and restrictions on the eligibility of ability-to-benent stiKlents,

We recommend several further steps to improve the
acconnubility of all institutions:

As a pierequiste to ceniftcaUon or rNertification, i M l i lUliOPa
thnuid be t«flutrBrf to an hnut to the Bducation Denaitnwnt aitdited

financUl gt^tT""-"" certi fiwi hv aw i.»tepgndent onhlir acroUHtant
far their two mtvit rme^t Rm.i vears. InsUtuUons identified in the
certification process as having actual or potential management
and/wr finam:ial problems should be required to provide interim
reports as a follow-op to certificatitMi.

A ll il»tf!!'H?*f fgqaired to provide the DcpaitmBM

w^th detail« | <nf»fmarion nn reveniiM and exnendittirei for iMlusiflB

j ff th«. Intaw t*^ Pn.t«i»ciHiri«rv Education Data Svstem (IPEDS.

admiolsteted by NCES).

Id additiwi, institntions accredited by two or more agencies
should be requited to identify which one provides accreditation for
the purposes of Tide IV eligibility, provide die Department and their
•ccieditinf agencies with foU disclosure of the reasons for their

1' ;j

nralti^ iccfediadmi, and Botify ite Dei»fiiBrat when one of their
soBices of ttcmUtanon is dn^>ped or witbdrtwn.

We alto snpport several reconuncBdaiioflS inciiKted in the
Adm i Bi rt iatioa't reaathorization {wopotali tnnsmiRed to Congress
AprU 30. idciodiag:

EstafaHshment of a minimnm Hroywm Iwifth n^nWmmmnt of
ail mondii feoiiivalent of <0Q hoim> m a eomHriwi riiyiMlity for
M¥ of the GSL Pfoaraim. consistwit with the miniiiwin-l«.|th
attndMd of othar faieral simfaMtt rid proframi- Prc^rams crf lt$$
thaa 60O hoars typieally proviife training mitry-Ievel, minlmnin-
wage Johs, and needy sindentt should not be penniMi to assume
large debts for such training.

Institutions should be nrnliiMted trom pavin« mn^ eomnriMtnn
bcmua. or other incentive Mvment based directly or indirHetf% em
ennQiiiiiy «tn<i»i«t« or OB Student aid volume to persons engaged in
making final ad mis s ions or Hnaocial aid eligibility detnminatims, or
nemitnwot of praapectlye stodentt by third party agents »
contractors.

Inrtitntjoni ihonld be leipired to tcknemMf^ hv itio timn.
of ti^ tWa rV BPPOTMn piMtiripHan aprftwiviwtt ih.t fh*
Secretary, arrwwtirinf aymeteM. fawntae ayenria*. and mta»»
liCBuina aaencies have the riaht to share infbniMrion f«l«v«it ta
iMrit«Hi««'« Title IV eiifiMHty

C. fmnrovina State Ueemnra St.nilTd.

ERIC 10 i

A neeai stwly by tfw State Higto Edncadon Execstiv« Officert
(SHEEO) fbOBd thtt tte stttes are higWy inconsistent and ofwo too
«wak in ilwir lic««in| standards for po9ti«:ond»y Instiiotions to
assue reasonable standards of educational quality and consumer
proiectiffi). SHEEO is ctBTenUy working on the iteveliqjment of
standards for state licensing.

We believe tte tiote is fight to accelerate this process through
federal leadership. Wf t^gnmniwut th.t the Sfrrfftarv he authoriied

tft devalop- t^jMiiiultati ip" «^»h SHPBn ami other «PPrDWiMB_ataiB
«yi.nciei» 8t»nH«ri4« which that laWS and twHclCH PTOYida

«n «igq«^t»t h««i« fnr th» 1iee««nre of IMWtsecondarv initrilUtjoni.
inrlndiny thff rapseitv fPT flYf^'^g''^ inve^rigalion. and dCtfTmiMrion
«f in«ritiirian«l enrnnlimnce.

We also recommend that sutes be required to report to the
Education Department and regional or national accrediting bodies any
negative action affecting the license of an institution to operate,
including denial, suspension, or termination of authority, and the
final resulu of any on-site review of the institution.

1^ StTenytlr «i"g Ageredirina Bodies

Federal law forbidi the Secretary or any officer of the
EdttcaticHi Dei«mnent from 'exercising any direction, supervision, or
control over... any accrediting agency or association.' This is an
important safeguaid for the private, voluntary system of
meditation by which the world of higher education attempts to
assure die quality of its institutions. Nevertheless it is «itifely
^propiate for tlw Secretary to esublish criteria by w.lich

ITi

ERIC

100

iGcmUtiiif usodaticms may be recognized for pwposes of
deteiminiQf iostinitioMl eligibility for fedenU student lid.

Wfl recomiitBnd that the S«niBtMrv ^ir^iion apecife at>ndapd»
for recQgnizintt accrediriaf aggnctei for the jmrpoui of iniarinitlonml
Titia IV ctiyibUltv. Ad Agency shonld be required to dramistmte that
it has to ability and experience to i^eratt as an accrediting body,
that its i^incipal {Hirp(»e is ^creditation of postsecradtt^
instittttionB aiMl/or im>grains, Aat it maintains a cle^ distinction
from any i^essicmal or trade organization, that it tfetermines that
the fTognm length is appropriate to the subject nutter taught, and
otherwise assures that the institutions it accredits provide
satisfact<^ education and trainingt including the provision of
adequate student support services where an»ro^ate. Agencies
should also be required to repmt any final negative action affecting
tte accreditation of an institution.

Wo . also recommend that the Secretary's Naticmal Advisory
Committee on Accreditation and Institutional EligibiUty be
strengthened by the addition of representatives of public and
independent four-year institutions, conununity colleges* proprietary
institutions, professional schools, public members, parenu and
stttdenu, and representatives of the Coui^il on Postsecondary
Accreditaiira* Tht Cmimittee should be re-nam^ die National
Advisory Conunittee on Institutional Quality ai^ Integrity, with
r^pomibUity to tdvise the Secretary on stamlards oi recognition ami
to recommrad changes in policies affecting institutional eUgibiUty
and oettificatioD.

ERIC

101

R Rgynlatfifv Reform

F<v the i^t decade the DepmmeDl has consistently failed to
ccHisoU with the higlmr educarioa community as it developed
regolaiioos ia dtflficult im>blem aieaa. As a result, regulations
published fa comment in the federal Reyiiter often propc^e
unrealistic and unworkaMe solutions which take tte community by
sufi»rise, create an uproar of controversy* and require the
intervention of Congrest to resell^.

yff yrgfl eKteasif^ \Q the Hlghar Fdacarion Act <rf the
ngyfttiated ro lgiMkine Mfi>nr4tv povidcd for the Pcrkins Vocational
Edttcntion Act lart year. This would require tl» Secretary to
esublish a negmiated nitemaldng committee representing affected
sectors of die community wheiwver it is in the i»tblic in^st to
attempt to reach consensus on a proposed nile befcHe it is published
for comment in the Register . Such consultation in advai^e with the
higher education commnnity with respect to regulatory matter that
affect it would permit the sharing of infonnation and expertise on
the natme of the fnobiem, and the iropi^t of various options for
remedial action, befim Department^ policy is determined, rather

than after the fact

iifHi^ niciimm^adatifM^ ihst the Department be refluifcd
to davelofi jirffrnMiw^-frpiffid ttendefds for the administration of
Titla IV pro patm woold altft pmvide an imPOftant StOP towaid

^ g^utary reform. For example^ prc4>lems that have been idmtifled
in short*term. sWll training programs have resulted in the imposWon
of inappoepfim, costly* and burdensmie reguUuiotts on two-year
and four-year degree-granting institutions. Establishment of

r 7

102

perfonntiice-bised sta^anb could resell in specific Bod mm
effective legolAtioiii for sectors of postsecoadary edncttioo with
difitorrat onistioot and goals; it ciHiid also provide criteria to waiving
regoUtoiy reqnireiiieiits f<» instiuitioss whicb high
performasce sMtdardi or valid altemaUve stamUrds. The
Depti uncut would no tonger be in the positioo of penalizing all
institntiotts u> stop a small minoriQf from abusing dw sysion,

Hnally, we believe thai the Department should be enctmraged
to seek new wiys to reduce the regulatory burden on institutions.

Thmef ore, wB iwmwBMrf tfiM tlw SwMif Iw attthCTiiwI » mafcp

dgimmatrmrifti^ franw ttt poatsacimdMV instltatioM to davatop
InnovativB agyranchem that wontd imprnve the «lminUtr«rimi of
T^tla fV pmyrama and reduce their ta|plaiCTy bufdm.

ERIC

103

Mr. Anohbws. Mr. Atwell. thank you venr much for your pa-
tiencs and your testimcmy. We will now h«ur from Mr. Brenner.

Mr. Bbennbb. Thank you. We have provided you with a mU
length copy of our positum paper. Mr. Chairman, members of 1^
sub(»nnmittee, my iaat» is Marc Brenner, President and Fiscal Fi-
nancial Aid Director of Ohio Auto Diesel Tedmical Institute, a 22-
year-old proprietary school located in Cleveland, Ohio.

Curxently, I also chair the Beauthorization Task Force of the Na-
tional Association of Student Financial Aid Admmistrators. It is
indeed a plei»ure to have the o^rtunity to appear before you
today to express the vievra of NAS^AA and its nearly 3,300 mem-
beis on chsmges Uiat we believe must be made to help ensure the
integrity of the Federal student aid programs. . „ ^ ,

ife are aware that there are people that perceive the Federal
student aid programs as wastenil, extravagant and fraudulent
NASFAA does acknowledge that some of this criticism is valid and
itutified. But much of the conitenmation is unfair and does not sk^
curately portray the value such araistance provides to students and
their families.

And we are all aware of the abuses that have been publicized in
the press. While some of tiiese reports were miher overstated, mis-
interpreted or isolated incidents, the fact remains that these occur-
rences can not simply be ignored, nor can we rontinue to delay con-
structive actions to redura or prohibit such incidents in the future.

Singularly, perhaps none of these incidents would necessarily
create a m^or cause for criticism of overall educational operations;
however, taken collectively, the occurrences have cast a negative
shadow on our industry and, more specifically, the Federal student

"^S^tTwant to emphasize is that the majority of posts«»ndary
institutions are credible, reputable, and they deliver the education
and training that they promise in meeting the needs of their stu-
dents.

NASFAA recognizes that much needs to be done to ensure the
integrity of the programs. And Congress and the admmistration
have already accomplished much since the last reauthorization to
enhance program management, to prevent fraud, waste, abuse, and
to reduce student loan ^faults. , , v ,

Every member should be aware that the steps that they have al-
ready taken to reduce student loan defaults are, in fact, working.
And more recent change n«ed time, they need a chance to actual-
ly begin to work. , , x *u i j

The mind set that too many borrowers once had that they could
default on their loan obligations without consequence is disappear-
ing. People are getting the message. . ,^

Let me stress that the miuoritv of students are not defaulters.
The fact is that in the history of the program, billions of dollars
have been lent, and millions of loans are being repaid at the cur-
rent time. These loans represent aspirations fulfiUed, career goals
achieved and studies completed with degrees awarded.

As professionals who are more directly mvolved and responsible
for the administration of Federal student aid than anyone else, we
understand the complexities involved in the system and the oppor-

104

timities for some to take advantage of a system di^dgned to work
for educational oppcnttmity.

In the past, some have ^ed that financial aid administrators
act like ficteral mt^pram money is tibeir own. Wdtt, we do seriously
take the stewardship and the am)untability reqx)nB&)ilities that
Congreffi has entrusted to us in order to carry out the gcmls of the
Title IV progran^.

As members of Congr^ gN^rving on this subcommittee, we know
you have to justify the Htle IV programs to other members and to
your omstituentB. We apprecute your support in defense of the
stud^it aid in the past, just as we look forward to working with
you now to help ensure the int^rity of and rratore public confi-
dence in the student assistance programs.

Nothing you can do will be more important to both the long term
and short term success of the student aid programs than what
ymi're doing now. We iirmly believe that there can be no improve-
ments or increases in aid to the neediest students or to middle
class families or to others without Congreira direcUy addressing the
issue of pn^ram int^rity.

NASFAA has apprcmched the issue of program int^rity from
several different perspectives. In the written statement tlmt Tve
provided, Tve gone into much more detail, but let me summarize a
few of our recommendations now.

T6 h^lp reduce defaulta, NASFAA strongly urges the Congress to
change the funding structure of the Pell gnmt program by creating
an mtitlement for students, rather than maintaining the current
discretionary appropriation ^stem- Failure of the appropriations
committees to follow the pohcy decinons of the authori^ng com-
mittees has necessitated more borrowing and has rontributed, we
beliei^ ragnificantly, to the default prc^lem.

We've suggested establishment of reduce annual loan limits for
thrae<)uarter and half*time students. Further, we reccmimend that
institutions be allowed to establish lo^r Icmn limits than those
previmisly dracribed in statutes. These changes will prohibit excew
borrowing, and thus, lower the default rates.

NASFAA further rerommends extending the current 10 year re-
payment period to 15 years, keeping monthly payments affordable
to help prevent defaults.

Another miyor initiative under the cat^orv of program integrity
endbavore to set up systems of checks and oalancra to allow the De-
partment of Education and institution to monitor and manage the
programs better, and to limit student and institutional particiim-
tion in the programs where appropriate*

NASFAA reconunends the crration of a statutorily tesed self-
r^ulatory quality assurance program bas^ primarily on the suc-
csasfUl institutional quaUtv control pilot pro,^ currently in place.

NASFAA recommends the um of performanra criteria, not only
in limiting eligibility for participation and student aid programs^
but also as a m^ms of encouraging good performance 1^ institu-
tions and othere. NASFAA feels strongly that althoui^ sanctions
and additional procedures are n&xsaaxv for certahi institutions,
there are many whoee ability to successnilly manage the program
is impeded by excera regulations, sanctions and procedures*

105

NASFAA also supports the concep* of negotiated rule making
that has been advan(^ by oUier higher education asrociations.

In conclusion, Congress should carefully examine the root causBB
of the pT^lems and design sensible, sensitive and effective solu-
tions.

A proper solution to an integrity problem in student aid should
have the following characteristics: it should identify, isolate, and be
germane and proportionate to the problem.

At my school, we teach new students to use the proper diagnostic
equipment and the correct parts to repair an engine that is not
working. An inrorrect valve part of a missed diagnosis of an
engine, just as an incorrect student aid l^fislative solution, will not
solve the problem, and, in fact, would lead to greater and unantici-
pated pn*lems.

The Coi^rress must also do the same and not try to force a solu-
tion which will cause even greater complications or system break-
downs, or, in fact, hurt students.

NASFAA looks forward to working with the subcommittee to
ensure not only appropriate program standards, but also to restore
public confidence in these important and essential financial aid
programs. I would be pleased to answer any questions that you
m^have, and I thank you for the opportunity.

prhe prepared statement of Marc L- Brenner follows:)

ERIC

106

STATEMEffr OF
THE NATIONAL ASSOCIATION OF
STUDENT FINANCIAL AID ADMINISTRATORS

BEFORE THE HOUSE SUBCOMMITTEE ON
POSTSECONDARY EDUCATION

PRESENTED BY
MARC BRENNER. CHAIR
NASFAA REAUTHORIZATION TASK FORCE

May 21. 1991

ERIC

^ 1\2

107

Mr. CM^man ml MemtaB of tlie &^connntee. my ns^ is Maic Bitfloer, Pmhtem and Flsc^
Ftaanda] AM Dtmm ttf Obto Aiito Dtesei Tectak:^ InsHoiie, a twas^two yw pfq;^rtet»y
sttecd kcml fai CSevekod, (Mo. OmasAy, 1 ch^ the RetuteiUtflon T«s^ Fcm of the
Nttknil As90d«k» of Slodta Ftom^ It U indeed a pteasuie to

have the o iyo mml ty ^>pear helm yoo loday to ei^sitss the views of NASFAA and Us neariy
1300 memben on ctages that we hdiei« most he made to hdp ensure the imcgiity of the fnteial
sttxteni aid picgiaBu^

We aie aware thai itKse are pcofsk (hai perceive the fecteral student aid pnograns as wastcftiJ,
catnv«g»t, and fraudulem. NA^AA acknowted^ that scsne of tt^ critJcisro h valid ami
jostiHed. BvL msch of the cotvtemntthii is larfair and does not iscumely portray the vahte such
afffisn^ pmvides to students and their families.

NASFAA recognizes that mwA needs lo be done to ensure the in^grity of the jHi^rams, but we
also mi^ remcmher that the Qmgress mrd Ad min ist ra tio n have dmie much in the last
Reauthoiizaskm mrd since to Gihmcc pmgram mana^mem, prevent fraud, wa^, and ahuKp and
reduce student loan defaults. We should review these changes, improvement and reforms.

For txm^ among diose changes are rqnitiT^ of bonoweis in default to nsticHtal coisumer credit
bureaus, u^og priv«e collation a^ndes, Jiotice Departmem law suits, gamishnKnt of w^es, co-
payabk checks to the student and innimtion and multiple disbuisraients of loans, 30-day ctelayed
dlsbuiscincnt. univetsal need aoaly^s lo de&rmine eUgit^ty for loam, IRS tax offset of refunds,
austerity fc7 aid administrtfofs to rectoe or cteny a loan, tightening up on SLS cligibilify, ml cat-
ofTs of eligibility for loans at schools with ht^ <klault rates. We underotfid why the Congress
made these modifications to the EdtH:^ifm Act Howev^^ some of dvse changes, well-
meant widvmt qnesdcmu have caused real haid^ps for mtUlons of students thai are not pan of the
piDtton these revisions intend to correct NASFAA has woited with the Congress to help reduce

lOS

m^m km deteiis ml bxcwe pfugrm tee^ty just as wt have n^jfxuied acstons ctf
Dqpanmem of Edratta. sQCb n lo^Miy reporting of a ditm's license 09- nexi-of-kki tofonntticm
^ bem uidL tomnmi, to tacitase aowwmaWHty ami promce better jmignm managesnem.

I wvH So additsi the tof^c of soKtem kns ^dwuhs wbidi is one in^xm^m area when coosidejlng
pn^nsD im^itty. We are arar that there are peofde that pereelve the Mati mdm aid
pmymiis as wast^ul, cxtravasam, and finMhiknL NASFAA admowtec^ diat scsne of this
piticiaa la vaUd and Jistlficd, ^ nn^ <tf amdemnatkm li nnf air aid doei not accunuely
pMUiy the vtioe sods aatitfanpe piovto students and their fondUea. And. we an are aware of
the ahoaea ihs have been pubUcixed to the press. WhOe aomc of tese repons were dther
owmed, Bo Mutopiete l or Isolased inddezos, laa remains thfi the oocums^ cannot simply
be Ignored, nor on wc contiiBie to delay ccmstntctivc actions to reduce or jHotdbil sudi incidtms
in the future. Singidarty, peitaps none of these InckSenta would necesssily crease a mnior cause
for diticiam of ovciiU eductttod opmion3w However, t^cen oidloctiveiy, die occuremes have
cast a negative shadow on our todustty and nwc lipedScally. ihe federal findeat aUl
But, whs I warn to emphaate is tttat the majority of postseoondaiy institptois are credible.
repDSaUe, and defivcr ediKiatiofi and tndnii^ meeting the needs of their students,

Evay Membw should be aware (hs the steps already taken U) reduce student loan defndts are
woridng and more recem chsa^ need to be given a dbmvx to wit. The mindset that too many
bMTOWcn onoe had dtat diey could defmh on their loan ofaligatioais widiout consequence is
dlsappevtng. Student bon owe ia now know dial dieir credit ratings will be aHtoed by a kmx
detedt, that ihehr ftdoal income tax re&nds can be wldiheld to pay for a defimhed toan. and that
diey face not only effbm to odta thdr debts by collection agcf^ies, but that the Justice
Dquntmenc will pmsecute rhtm.

109

Ttae « c« In wWch l«Bvldu.b to* 8D« to
AH»me5» to l%iWdpWa lave srtzed

1»B detoiw ,»h«q«Bay. fi^ ciw
w to Ite iW«wv « ewBtag. or ttw fl« 11, mftrt
TTr« «™ Jmlu ta Ite who tteMiy to ite

ibtse itiBttlte arc neassaiy and an^^ J^opte are gating the nwssate.

Hm«w. let « aie» dttt moa andffltt BB not defl^
■ndftdly. M«nyorilietodMiJ»Hl,wtoitodcf«alit,pte^

iw cooptecd thtJr pfDgiam of poasc^^
orarcstagtoi»rcat««Mrf4«,B«lK^ Rxr n«ny of these

indM&al^,sa«^emloiadctomc««e.«^^ dlHkuIi penonal

clnan«««. And. tel us noi fo^^ tim the «»dcm to« &r«uit p,pito did «« ^
owmJgmand ihtt aprtme reaion the dnutton became so serious is that the Dq»itn>effi of

Ediwttlon fiw «o many ,«m to whatever reason. Le. lack of ati^
taifenJjJft or teadeqioa rcsoatm. d^

awto ban jTOgrsms IS was wpiiml NAS'AA is caaiiously oi«toistlc that the itcea stiKJo*
ftofflclal akJ manapaneffl changes announc«^

projms SnaUy getting «hc MentioB and proper managnnem that they deseive.
It is ta|K«tiit 10 note that one itasGD drfault «ss to the

«Bde«. are homminggreaw amounts. Ctoitlaiive toan voiume has grown ftom $21.2 wilion in
1980 to $101.6 billion to 1989. One consequence of this gn««h »s « inctwse in del«a, claim,
P«IVlhefDven««ni.e«ntho!«hthe«eofdefa«lthasremaliK^ ,0.1 percent

1 I 7i

ERIC

110

is nr-«0 » 93. pracent In FY-89.

We iwd, l«n««r. » «P t«k Ihm ilie pmWa^

|Meirittide«!hi»dWisil»aBWl^^ Over 10.000

tade«p«W|«totek«np»gnm.. Awn«an«dy 4 J mlllto autoa low «

to $2.«25 «l to .mwe gr«to«e to« ». $5,747 » e«i»«d by tl»
FY-92.

pn^tttotaiWifci-li^towwJws^ TteltoisthiJintohiaDiyolto

MHtes irf in U»n. hm iii-te
becnieptU. Ttee torn iqwscot .qrtmtooi fUfflto^
c o B ipirfff tf with d^pets awntteii

Weirt stu*« to«. pw8»m h«« K> toenail

B«o wWi news of to pH*fcn« to America ed»«tioa swim

« wift « cd««rt dttomy to» comribwe. » <w «^

A. pn>f«lon.U wha « m« ««cfly involved «J «^
aid ito myone d« .t Amerim posscc«»ta^
to to «y«tm »id to oppommiti« for «o« to
wo* lor «*«tion.l opportunity. Smto, flnand.1 aid adminJ««o« know fi«-h»«« wh^
«««y»lmtto«towiUofC«g«»»e.p«s«dti^^ ^

lit;

pnce^its tnd Bunftgeoient irffmjhuiff wlD eoaiit ttuA the liw is cwnicd out wd thtf D^>vtmeiU
of Bfocttten scgokikxis are eucmsd pnspeity. What st^ omsi be utai tt> ensure ^ die fedeni
i^jfMDfxiitiOQS eiiinaied so tts are not ady weU-spm tp pipmose access lo a p w<«cond a i y
ftftTTT*^ for fliff AtaSents, bm ate are accoomatle to te taup^. fn Die paa, sxse have joted
that finflKid rid adrntntetratei i act Ule the Merd pn^iim money Is their own. We ito take
seii06^ Ihc sicw a rt U h i p aiv) acammdiiUty re^wmihiliries tite Qn^css has cmmsted tis as a
piofetsloa in oite to cany out guOs of ttie Utte IV pi^nw.

As Membcia of 0019m aesvh^ 00 tfaU ^mnsoHtee, ws know have bad to ^isify die Ude
IV fR^m to eter Meetefi and to >w oMSntanti. Wie appieciatB )OBr st^pon and dcllcnse
of storicol aid Us the jttst as wc k)ok ftmiwd to wokii^ w)^ you now to bdp ensure the
imq^r^ of nt |»bUc cnifUlenoe In the at&dem as Kochii^ yi» en do win be

more tapsmMA to both die Us^-fenn and dm-mm stKoeis of die stodeni M pn^rsms dun dda.
We flimly bdleve dien cat be i» bBprovemms or increases In akt to die necifies smdems or to
mUdle-lneaac CmUks cr m odns widms die Congitss dlf«cdy ad^essb^ die lisiie ^ piognBD
lutc^iiy.

in d^ ^piftt, NA5FAA m$ke» die fcdkMvlnf leoommendadons to a^ in cnsnfing progrim
taiegiity sod piAiic confidence in theTltSe IV pn^xams:

NASFAA has ap pn whe d die Issue of (BogrBn batgr^ from diree diffietcnt p enpec ti vcs.

FM, NASFAA does lecogtdie dm cubti^ die biddenoe of studoft loan details U of uODOSt
imp o rtan c e dtgin> this reandiortmkat As 1 haw dlsciiiwi. Coiycis and die DepMttpad of
Edacadon haw akcady done loacb to aveit km de£ttilis-^

ID stew resam. NASFAA, hDwcvcr, recommends die foPowtag addBtlonal changes to protect

117

112

vitoa^ fotoil ftmds kx the smdem toan progmns and, «]^y Unpoftam, to safeguard st\Klcntt
Um ncgnivc o w ocq ue iiccs of havfatg a ddtaiih on tiidr ciwUt rccortl

CI) NASFAA lOfes Cm^iess lo dia^ die fttfH&tg ^tnictum of ihe I^li Oram

Ftogrm by cfvatb\g m entiflgmenl fbr stodcots rather tttan mainTatnlr^ the cuneiu disactionary
j^jpropfi^ton sysscsi,

Stee the ras Onm Fft^ram's flm u^horizaiion in FY 1973. the Appsopfl^om committees have
toded the progum at its mthortred maximum osdy three times-mosi recently in FY 1979. in
eveiy other year, the pn^fso mff rii m i m has been below the policy levels sfi by die aMthorizlng
conimltKea. Faliure of the Anm^atim comtiUttces to foltow the policy dcdslons of the
auth^izing comtmnees has neoeffiitazfid more bonowtn^ m the pan of needy studcnis and has
oocttilbused-we bdieve ^gniflcanly-to die defauh pn^)lem.

(2) In ooi^luiKtioo with oar itcomrociided incitased km Umiis for the OuarBSeed ^wletit Loan
Ffopmi, NASFAA *s recmnrndidioQi would also tms^ish ivduoed annual loan limita for dm-
qoaner ml h^-dn» students. !d idstttion« NASFAA re^cmunends dtat institutions be allowed to
essahUsh lows' tnstitifttona] Soan limits than those jHtscHbed in statute. We feel that these changes
ait aeccssaiy h> pirvem exoen bonowi^g and the potsuia) for (tef ault I wmld also note that as a
imU of lad year's Keconcilitflon Act firandal aki ulminisirum cuntndy have the autfv^y to
deny tff reduce the amount of a student's loan In cettain dimnstances. NASFAA sopponed t^s
provision and beiievts dm it will be a useful tool ft^ instibitliHis to use in ddlauli preveniion,

(3) Alio floated to our iccoomsendod increased loan limits, NASFAA suggests extending the cunem
10 year i^ymcnt peiiod to 15 jvan to KODOUNidate bonvwers uke advantage of these
increased loan limits. NASFAA believes diat this tnctease is necessary to issoie that student

lis

118

bonuwcn wlU be able so tftoid die Mgber marMy loan i^yrocnlx associmi with such incicwd
to nowtoi . Keeping mmSdy v^ywmB tflbnlabte for bonuwcre will lieep f*^cklcnce of default «

(4) NASFAA also baa reoommeyited abttantial incitases in PLUS lo»i limils for jmm^ but with
sevcfti additional salegiwnis to pie%^ abw and the pocentUl for default NASFAA bclicv« thai
soch increased Hmisa are appiofsitic provided that cicdii chec^ are conducted, ihat fUrate are dther
electronically t r a g ^ cned to the tastitiidcm or theska are made co-pay^bie to die institimon and the
parent bonower, and thai PLUS loan ftods are moltif^y dlfbmsad.

(5) NASFAA fffowimfflrtt limiting d^l^ fi^ die Si^ftanemal Lewis for Suidems (SLS)
Rr^vd to gradaasc/kxi^ienknal atodenia with smfeign&MaB cUgiblUty estaUished thtough
professtooid Jia^xmt only* NASFAA believes dtat SLS \om have been utilUed too fnniuemly by
some undergraduate students and sfaould be used only as a 1^ itson for dsse honowcre.
Ahhot^ NASFAA bdievea dm much of d!ie "Ui^)pif^»ifie" usa^ las already been cuited by
l^^iashre means, we nulce thte reootmnendatkm as an addidcmal safeguani

(6) NASFAA resomnmends dial the cunrm reqidremcm tlal a student be oiroUed on at least a hair
dme basis to be ellgibie for Pan B loans be com^sued. We no^ that, ^ sc^ cases, a student
mmdd not enter repa ym en t f(^ ^loessively kxm pcHods of time if soch loans were defened for
smdcms enmSed less than half-time. WHle NASFAA Is sensitive to the needs of those students
who canom ^imU in po^seoondary eth^aiioo on at least a half-lime basis, we feel that allowing
these ssi^ems to bonow docs not serve them weU «td may oomribute to default costs.

(7) NASFAA recommends a const^idatioo of die defennem provisicms for stiatem loans irao thite
cate^niesw We believe that sin^iUBodon of the d^emient jHOcess will hdp cuib "technical

114

ifcfBiits." refrfrtng-in most teiances-tD mOem who go imo defiBih (te^ie tfieif good faiih

to unikmml Hie de&nnem cati^es and i^n & defcnncm. ASong tficse lines, NASFAA
^ ntggc^ resdndii^ the cuntm it«piij«niati thai a stutott wtrolled on a half-time b»b muii
tarow again in onl» lo ctain a defennent Coroisicm with ilw NASFAA'i tnoad policy ^al of
re^xing nelianoe on kwn, bdicvc it makes no sense U) itqiUit a studem id borrow anoter
loan In wxter to reoeh^ a defennem «i a pcvfously boirowcd loan, provided the student is cnrolted
mihe appiupfiw level

In addltHxv NASFAA recommends allowing dcfcnncms for an it^vklual aacixling an institution
cHgiNc for Title IV aid !wi wWch does nm paitkipatc in the Pw B programs. N>^AA briicvrs
that an individaal scwtem ^tould lecdve a dcfcnncm if thai siudem*s Instimiio^i participates in any
Thlc IV studem assistance pi%>gram» evm thmigh the instiiutiwi may m« ;^cipatc in the Siaffonl
Loan Program.

(8) NASFAA iccjommcnds thai the seller of a Joan be reqi^ied » twUfy detents that ihdr loan has
hrni sfM, Lack of diim infomiKton to stmfcms reganling sate of iheir loai» is a conirtbuUng
factor 10 default, wd NASFAA believes iha. although soow lenders cunmly notify students of
audi salts, that such notification should be ncquired in statute.

NASFAA 's sepond ma^ initiative trader ihc category of program integrity efxkavoni to set up
tymns of "checks and balances" to allow the Depsnmem of Educaticm and insiiiufKms to moniior
and mana^ the programs beiiCT and to limit stuteu and iiwimUonai panicipa&m in the programs
where apprc^aie. Among our itcommendations in this area are the following:

(1) NASFAA recommends the crpsiicn of a stamtorily-basttl, sclf-itgulatory Qualiiy As«jram:c
Pipgjwn, based prtmarily on ^ succesaJul Institutional Quality Control Pilot Project NASFAA

116

laiM c m* foraning pnHc i piU m &d xmmH from pn^m,

(2) KA^AA irmfrnnmli « of '^pertemaoe ototi'* not oi^ in Umiti^g eUgittUiy for
p ti t lcipnio o in ifae fiados pivgiami, bat tfso « i metos <^ tncoOTging pod peffbimiKX by
intHBtiDa mA octem NAS'AA fedt mo^y Urn dd^oc^ snciifxis sid additionil fnmdures
» TKxmvy for o^fito tnatoatota. tetv ire nwiy-sD^idled '*pod p er fimne n"- whose abiUty
to ium e ttftiS y mjn^ tbe prognroi is imp ed e d by emseo leguttfioo, wcHoro , and proocduits.
We bdievfi ihtf tflowti^ and cnooiingini intflrptimi impicmtnt iiffioessfiil p roce dww withoiu
* < t^ttti* M mi ftmocy or irgul^ory bttemndon wiU maitoSy imjKOVC ovtnSX peffmnme.

(3) NASFAA abo sippoiis me concept of oe^mated ndc maki n g dm haa beoi advanced by other
rdgter edooito Oeariy. the pfODmlgialim of ooimnioivc lesuluions in a timely
mMner to iuq » «i¥ e to nfi^oan! the imegftty ol die stodem aid pfOgram& Unfommat^y, evoi in
die men p«t. ic^dittiaoi tepicaietiling fWute haw not been issued tmdl itvcFd yem after
enactmoK of a Uw and* in ocher am, in^iicaiions of it^uitfioiis dm wtic issued were dsa
weO dnmht out by die Depeitmnt fif^otiml rotoniklng is a sensible le^mn to which all
Afteded panics wlU have die o pp ommiiy eaity in de rcgulaticm dcvtiopmci^ pfooesa to have input

odstakcs and misinietpRifilon ths cunenUy aflUa the Depaitmem't system.

(4) In lenna of limidng digibiUiy for d« Audem ^ pnignmis as a **check and batamx/*
NASFAA leco mro cnd f Umit^ die nminuim Ml Orm for m incaicerMd ssudem to d« amount
of ttddm «^ fees d« smdem is aascned for die ooiuie of study »id an aHowanoe for
book/tepfiica. We also suggest ethnlnitii^ incwimied Mudems from eligil^iy for OSL smdent
Iowa, bi con}i»ction widi dieae fecommcndatloos, however, we teco mmc nd a sn^y to deteimine
the pioper fondU^ mechsid^m and sotuce for incanmtcd swJcni&, NASFAA believes diat

ERLC

116

f^^sUkfikm <rf pemmt is sppn^ste, hawvm ihc source of funding to support such
itHshUittsiofi ^Nould be toennlned 9Sta Mh^ study.

{5) Abo In dib aiea, NASFAA ilso ttcaamcn^ adding Ihc irtpiirnncm for a tvvo-smest^
nidentlil co ro p on e m for a ooirespoadenoe school to be eligtt>k fca- FtH Gratt ProgrBa fiiwls, Wc
also itoofmneod rmbHtfyi ^ a 600 thck tmt ro^mnem for pipgrsns paitkipasiflg bi Ok ^udcm
M pspgrmi. We beUew tesc nquijtmems are necesaaiy to nhanoe ihe im^fy of the pn>grsn«

(S) Ai another exasq^ of ^ type of Umitatoi, we reooaunend itquJiing thti the munber of
stodems who arc not Idgh schoc^ graduaM ^ who rccelve TSite IV mdoa assistance be
ttmlted to not moit dtan ^ percm of m iiKiimticm's fc^ular Audem headcount, mS thm pio-rcta
tvAuKto ihouM be rcqohtd for such students,

(7) NASI^AA itoominends aUowii^ imtlnith>ns e«p4idt auihoilty to withhold smiccs, such as
m d e^ tranaciipta, fioai bomnven Mfho de&ult on their studem loans. In sosi» instances, state
laws may cemsA the release of» or access to, an todividual's acsdetnlc rcconb. NASFAA believes
that fedend authorhy to address thte issue la desiratde. authorization would darify
tetstituttaal authority to tiks action lo reduce defaults.

<8} NASFAA »iggests an increase in the pentfties associated widi the mttimiii^ pn^lems of fraud
and ^x»e* NASFAA bdicvcs thsi^ in additkm to reinforcing institutitmal administotive
requirements and bicreasii^ hmding for Edu«si<m Dcpaftmens administr^ve mcmies £d oversee the
psugrs&s, it is also necessary to stioigihen the Dqmment's discifdinaiy authoiity ihmugh
appfopfiate increases in the penalty associated with fraud or abt£$e.

The ]a« area relating to snidem aid laogram that we address in tmr recommendations deals with

117

boStfb^ ntf pramoiliig poiilk stqspoA and As his been 4iscus9r<l

nuQy lisxs teSoit, taxpayer mm to ilie mgngemcnt aid dEeahrtneis of die snMfem piogmms
li eneoiial If diey mb to be mntliniffrt and cixpanded to bdp smnc sod moK Amer^ stnttems
Among te NASa^AA leconusendadons la fl^ uva am Ihe £(^knvii^:

(1) mofiy enooisige ai^xkm of NASFAA's Plan ft^ Reform, whidi was i»esvniod to thte
j^ip ^wmmi^ csdkr this monsh, to eome f idmcss in te ^vdM aid |m)gnms and lo pit»iK)le
shnpiidiy so dm the process is uatosttiidabk: for ^

NASPAA lecp inmen da estaWsMog a set of acslcos in tbe Hi^ier Pilnrarton Aa to die evov of
a gujuwy agency losolvency to pixiMt te inn^ii^ <^ tbe toan sy^m and to etmuc that loan
o^jtaU woold oonslnue so be avidlidtfe tt snutos. bi July 1990. v^iien the Hij^ EduadioQ
Afisiflaiice Focmdatian deciared banknsptcy. ttieic was roo^ oooeein amoi^ knding oraununity,
otber poiamy agendes; insttonhms of bi^vr oducaiton^ the mOU, and* most impon^y, stiutems
ud pafcm bectssc vpcc^ pi o c cd m cs to address guamty agency it^vmry wem m in (tax.
Had Ibe stbutioo <blfled into a "panic" dtie to knder luiccftainiy about the oatus of their
outaandin g and new toans, it is possit^ thai lendeis have taken steps to minimize their
exposmv r risk or even suspendcad their panidpatkm in die 05L piognms. If this had occum^
ten ftmher piamtty agencks may have fiMmi dieir agenc^ facb^ imdue flnandal risk. Even
mm alanning, ii is likely t)m studems-HSsped^ tow bioome bonoweis or those molied in
sbon-ttflB propiffls— would have expeiienoed access pmMems.

Our ivoommendatloQ would fequirn a study m desenabie dte medianisn^ and timelines for dealing
with such bisolvcncy if it should occur in (he hmut. iirtH additional infommion is availsHe,
NASFAA ivcoBuneods that, in the event of a guaranty agency failure, the Departnmi would
msDa^i bolb the mcrvev of the agency aid die e^nsvranct function.

118

(3) c^ms Uw manrtiOT dtoflautta of IV aoence and aiootau infofmnksn to all
studcm H tesit nmsBy. anl to a iitsafted mamKi. NA^AA re co g n igs ibe Impoiunce of
tfudcnti knowii^ thai fber com$ ffm federal govmmiait Sodti knon^di^ ccntffibuies lo
biraMttfed iBidrntsadii^ nd siqypait to fiie p n^ iram* ^ necemfy in these times of fiscal
c o w i iii iB NASFAA hdtevcf thai & it critkal for fitudem lec^toisa to imdemand the smm from
whldi thdr aiiliianoe orifiiaBBSp and we faelkve tids would be beno- Bcc(»npUshed by addition
0f the wonS "Meiil" hi each of the Tttic IV piogmn lusnes.

In conctotoi, Coogftss should caicMly exmine the root causes of proWems and design sensible
and e£fecth« adutloBi. A pf^xr ac&itioii to an btt^iity pnsldem in stmlens akl rimld have the
foDowing cbai i ctc Tiite : li AouU kloaify, isc^ate, he fenaane, and pn^xmkmate to dte puDMctiL
As my achod, we teach stodents to use the fnuper dagnostte equipmem and p»ts to repair an
engine thii la not woftii^ An hicsnwi valre part or a inisdia^mis of m engine, ju9t » an
in eonwt iti^ent aid kgislalive solution, will not solve a piubkm ax) may lead greater and
onMi^Mted piottons. The Oongiess mim also do the same and not try to force a solution whk:h
win cause even greater compUcatas or system bicakitowns or hurt students.

As an example of what 1 mean, Ics me dte the itqidremm of a 304ay delayed dishm^ement fta*
student loam We sii^iett tl^ requirEsncm, now mBodated for all institutions, should be targeted
Ofdy cm those schoc^ with a defiauH psohlem. Itds pn^f^cm of the law hurts sn^tems trying to
pay their tuition and fees, books and educatioa supplies, rem and food bills. Refeiring to the
dekyed disb wiscm cnt pierequiMte. jiot Ust week the stu<fem witne» before you, Annette Hines. sakJ
thtt **yDU roust wait for your money but bilte sid MU coOectois don't wait My mother and 1 M
to borrow money from &iends and pawn our bdoogii^ because we have to live." This provision
does not med the aiteiia I jim nemimd as a poper st^ticHi to an bitegitty pfc^ton. It should

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119

he c on c c te d wA oOser simlUr ipssoaches idxwld be Bv<H<fed in the renewal of tbc Act

NAWAA knlEB fofwtfd to wimUi^ with Uie SahcommlOfie to oisure, noi only «ppn){xi8tt prstgrm
it»|«nSs» hm to to resm puhiic oonfldaice in diese ln^onam ind cssemii] finiDdil ^
pcogms. I would be pleased to nswer any questions yon may have and ihnk you lor the
oppoitunity to testify.

Mr« Andrews. Mr* Brenner, thank you, and the questions will
come after the panel has concluded. The bells that you hear, as you
may know, indicate that we have a vote to go maL

So this is a good time for me to ask for unanimous consent. It*s
pretty ea^y for me to get that at tlm point Vtn going to go vote
and we are going to reconvene in ten minutes and resume the
imnel. We'll be right back, and thank you for your patience.

[Recess.]

Mr. Andrews, [presiding] Ladies and gentlemen, thank you for
your patience, and we wiil reconvene. Ym going to ask if Ms.
Imholz will testify next. We'll hi^ from her and then complete the
I^eL

Ms. Imholz, welcome.

M& Imholz. Thank you very much. Good momii^* Ym the Con-
sumer Law Coordinator for L^^al Services for New York City,
which is an office which provides free l^jal representation to low
income persons. Fm here today to speak on behalf of proprietary
t^e school students who have been defrauited by promises of free
training and high paying jobs; tricked into mgning for Icmns they
didn't need or want; mut out by school clroingB; disgusted by
broken equipment and teachers who didn't ^ow up for class often;
and ultimately were sued or harassed, at least, for defaulted stu-
dent loans that they a)uld not afford to rei^y.

Each day I reo^ive telei^one calls from students, counsellors,
lawyers and advocates ^m across the country about problems con-
cerning for-proHt vocational schools and related financial aid mat-
ters.

On the front linra, my colleagues and I are seeing a human trag-
edy of immense proportions. Nearly every client who walhs
through our door has had a proprietary trade school problem or
has a friend or relative who is aggrieved.

The consequences th^ suflfer are far reaching. Over $6,000 in de^
faulted student loans, loan coUecticm law suits, ineligibility for stu-
dent financial assistance, including grants, because of defiaulted
! >nns, negative credit ratings* loss of confidence in themselves and,
significantly, loss of faith in Uie government system that allows
funds to flow freely to fraudulent operations*

Indeed, an entire generation of trade school students, mostiv mi-
norities, will be turned into a perman^t underclam with loans
they will never be able to repay, foredoe^ educational opportuni-
ties and, perhaps, permanent disenfranchisement from the work
force unless this reauthorization procera provides them with some
relief.

The current statutory scheme has proved totally inadequate to
prevent proprietary tra^ whool abuse of Title IV prpgrams. None
of the reforms enacted in the past several yearn provide any relief
for individual stuitents. Thus, when a proprietary school which
never should have been eligible for Title IV aid in the first in-
stance defrauds a rtudent or closes prematurely, the Oei^utment of
Education simply blames the victim by haraaaing them to repay a
loan.

The Senate I^rmanent Subcommittee on Investigation has con-
cluded Uiat the Education Department, ''has all but abdicated its

121

raqpon^ility to the stt^ents it's supposed to serve/' I certainly
agree.

A teUing namfde is its recent co-qxmson^p with the National
Association erf* Traite and Technical Sdu>ols, an acataditor^ of a
bo(^6t on choosing a vocational 8d»x>L In 1^, the department
hwl issued a report catalcnns the wideranread omsumer fraud
prohlenv in the propriety school indu^y . Yet a yirar later, the de*
partm^t joined with NATTS in jniblishiiig this boc^et "Getting
skilled, gettix^ ahead,'' whidi is a pnmotimi, ImsicaUy, for proprie-
tary ti^ie schools over other vocational programs,

'nie booklet contains no admonition about Ed's own findings
oi deceptive practices and criminal activity at some schools, nor
does it offer advice on how to avoid being entrapped by deceptive
practices or excemive loan obligations.

It unequivocally states, in fact, that accreditation m^ns a pro-
prietary school truthfully advertises, admits only qualified stu-*
dents, diaiiges reasonable few, et cetera The department knows
better* Every school nHiose owners have been convicted, every
school ffwnmr brought up on charges bv the Education De*
partment has been aoCTedited, yet this booklet explicit^ airaures
prospective students that accreditation guarantees quality*

Because of the inadequm^ of the current statutory sdieme and
the stance of the Education Dei«rtment, drastic legislative change
is neeited* Hie City erf New Y<nrk has pro pose d amendments to the
Hi^r Eduraition Act, as has Represratative Waters, several of
which deal with providing relief to individual students, as well as
reforming tiie regulatory procew for proprietary schools.

I strongly support these proposals, as does a coalition of student
luivocates mcroes the countiy. And a a)pv of the city's propraals are
both attadied to my t^rtimony and, I believe, in the House Com-
mittee Print I discussed them in my written testimony, which I
ask that you make a part of the record*

At South Brooklyn l^eH Services, whei^ I'm the Director of the
Consumer Unit, our offi^ represented hundreds of trade school
students in the past 4 years. We've brought class action suits
against several for-profit tn^ie schools, only to have the schools
enter bankruptcy* fm aware of law suits or similar problems in
nearly every State*

So far, the frustrating results of our efforts are prolonged litiga-
tion against corporate shells with littie or not aas^ students who
didn't receive training or jobs and are saddled with defaulted loans
and barred from further educational opportunities, and taxpayers
who must pick up the tab.

In 1^, we filed a law suit in Federal court against Adelphi In-
stitute, its owners and officers. The suit allies, among other
thingjs, that Adelphi was run not to provide education or training,
Imt as a firaudulent ^leme to Obtain government fimds in the form
of nants and Irans.

Just months before Adelphi had become licensed by New York
State and accredited, its pnndple owner had been convicted of de-
frauding the Federal Government of manpower training funds. At
its peali; Adelphi was a nationwide chain which enrolled thousands
and thousands of students and received $120 million in State and
Federal monies*

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137

122

Two montltt after we filed the law suit, Adelphi filed for bank-
ruptcy and closed its door as nationwide. In 1990, the principle
owner pled guilty to unlawf^y withholding student loan refunds,
but the stuiknts rtill hain't gotten the rnunds and remain dbli-
gat^ on those loans*

Adelj^ failed to refund approximately $12 million in student
loans, while the plaintiff elms has b^n »rtified against the
owners and operators of the Khool, the action has othCTwise been
staved because of ^e Imnkruptcy filing.

Our office filed a second class action suit in February of 1988 in
State court against another buainen school^ Market Training Insti-
tute, raidng dmilar claims In August of 1989, in the midst of liti*
gation, MTT also filed a bankruf^sv petition.

As thew two a^ses iUustratOt tliere are limited benefits to stu-
dents litigating wiUiin a fumkmentally flawed system where the
accreditic^ bodi^ and the U.S. Departoient of Education are often
aligned with schools against student consumers' interests, and
where school bankruptcy filii^ interfere with financial recovery
for students.

The parent regulatory scheme has developed standard and con-
trols oriented toward regulating traditional nonprofit institutions
of higher education. The system has failed to maintain minimal
levels of quality for proprietary schools and, in fact^ fosters school
owner gre^, profiteerinjg and widespread fraudulent practices.

For examplOt in a criminal trial in New York, Leonard House-
man, the former owner of a computer school in New York who was
convicted of theft of Federal funds, testified that prior to receiving
Federal funds he drew a salary of $10,0C X) pe r year. One vear after
receiving accreditation, I believe by NATTS, and Federal Title IV
funds, he inflated his salary to $700,000. Surely that wasn't what
Title IV mone^ was meant to finance.

Through litigation and school bankruptcy filings, we are finding
counties examples, which Ms. Waters discu»ed today as well, of
school owner fortunes, real «rtate empire yachts, luxury cars, con-
dominiums^ bought with student Title IV araistance money, and
built on the back of poor students who wanted nothing more than
to better their lives and those of their children by getting quality
training and a decent job.

The Senate Permanent Subrommittee on Investigations has con-
firmed that the vast minority of waste, fraud and abuse in Title IV
programs has been perpetrated by profit driven proprietary
schools.

One solution, in my opinicm, is to acknowledge the differences be-
tween proprietary ti^ie school businesses and other institutions of
hifl^r eduration and to r^ulate them sei^iatoly by providing a
dinerent definition within the Higher Education Act for proprie-
tary vocational schools.

This definition would be the foundation for a variety of other re-
forms which are enumerated in the Ci^ of New York% proposals-
performance standards and pro rata refunds being two of those.

Meet importantly— ril just summarize quickly so my collea|(ues
can finish-—! would urge the subcommittee to provide wme direct
relief for proprietary trade school students in this reauthorization
process. Prospective relief is <^rtsinly important. The reforms that

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12S

128

are raun^rated in tlie ci^s proposals* such as the pro rata re-
ftmds, we believe wmild make a robstantlal diSerence.

However, rstiroacttve rdief is alra needed for thow whose lives
have alre^y been deva^ted. Tbaae are studBnts who have been
deft^uded or victimised by school dc^^dn^s ai^ fraudulent activity.

We wmild bA that those studenta have th^ loans omcelled or,
at least» eteyed, and their eligibility for Ptoll grants reestablished to
enable them to go on with thdr livra to get Intimate education
and training so that tiiey can, in fast^ get back in the work force.

Ai^ thank you very mudi for this opportunity. YU be glad to
answer any questions.

[The inepaied staten^nt of Elizabeth Imholz follows:]

124

mnD wwfm soms or wmnwnmihtxvn

T i i TiMM nr or stmsm zasou, ng.
cravuHn coouznsos
LraiLiminan rat mn mu city
sron ityoo iL i ii usu •mrzcM
ios com snnv

8& wn itti

I AS tha COMUMT Lav towdinator for SarvicM for Hw

York City vhoBtt mlghborhood Pf f ic^s provide f r«« l^al rcpraaanta-
tion to low-incona parsons* Ovar thm past tour yaara^ our offlcaa
hava baan dalug^d with thouaat^a of conpiainta about propriatary
trada achoola: atudanta dafraudad proaiaea of frae training and
high paying joba; trickad into aigning for loans tbay did not
necassarily nead or vant or undaratand; diaguatad by brokan «]uip*
mant and taachara vho do not taach or avan show up for clasa; and^
ultiaataly, auad or haraaaad bacauaa of dafaultad loans.

Each day I racaiva talaphona calls froa atudanta, counsalors,
lawy^f* and othar advocataa acroaa tha country about problass con^
earning for-profit vocational achools and ralatad financial aid
xBBttara. On tha front linaa, ny collaaguaa and I ara saaing a
huoan tragady of inanaa proportiona* Naarly avary cliant vho
walka through our doora has aithar had a propriatary trada school
problaa haraalf or haa a friai^ or ralativa who is aggriavad. And
tha consaquancas thay auffar ara far-raachij^s aa auch aa $6,625 in
dafaultad loans, thraata of lawauita, ineligibility for any futura
atudant financial aid including grants, nagativa cradit ratings,
loss of confidsnca in thaaaalvaa, and loss of faith in tha govam-

125

Mntal systra that allovs funds to flov to fraudialont oporationa.
Xndaad, an antira ganaration et trada school atudanta ^ aoatly
mlnoritiaa - haa baan tumad into a pananant undarclaaa vith loana
thay will navar ba abla to rapay, fwMloaad educational <HPport\ini-
tiaa, and parhapa paraanant diaanfranchiaaMnt tha worX torca.
Thia la a far cry frM tha ^ucational opportunity Titla IV waa
maant to craata.

Tha currant statutory achaaa haa provad totally inadaquata to
pravant propriatary trada school atniaa of Titla IV prograsa. Tha
lagislativa and ragulatory raforas of tha paat faw yaara nay pro-
vida tha illusion that tha problaa haa hMn takan cara of; it has
not. Soma of tha aaandaanta hava baan aanipulatad by propriatary
schools to thair advantaga; othara hava baan ao narrowly intar-
pratad by tha Dapartsant of Education that thay hava bacoaa vir^
tually saaninglaas* Worst of all, BfiOft of tha raforma of tha paat
savaral yaara provida any raliaf for individual studsnta* Thus,
whan a propriatary school which navar ahould hava baan aligibla for
Titla IV aid in tha first instanca dafrauds a studant or cloaaa
praoiaturaly, tha Dapartsant ai^ly **blasas tha victia* by harassing
tha atudant to rapay tha loan.

A tailing axaapla of tha Dapartsant* a failura to protact stu-
dsnts is its rscant co-sponsorship with an accraditor/ tha National
Aasociation of Trada and Tachnical Schoola (NATT8) , of a booklat on
choosing a vocational achool. in 1988, tha Dapartmnt issuad a
raport praparad by Palavin Aaaociataa that cataloguad tha wida-
apraad consuaar fraud problaaa in tha pr^iatary s^ool industry.

I'M

17-W a-« 5

126

¥«t, m ymmr l«t«r tha I>»partMnt jolMd haws in sporaorii^ th«
booklet, •Cutting SKill«d, Gotting Ah««4», which usqu«rad«s «
conaunr InferMtion publication^ but in rwXity im aiaply m pro-
mtion for pr^imtary trado school* o¥»r othor vrcational
progrua. Tho bocOclot contains no admonition about DSED*a ovn
timSinga of inannropriata acteiaaiona, axc^aaiva financial aid obli-
gationor and dac^iva praeticaa at aoM achoola. Hor doaa tha
booklat of far advim on hw to apot and avoid gatting antra^ad by
fraudulent praeticaa. on tha contrary, it unaquivocally atataa
that accreditation mana that a proprietary achool truthfully
advertiaaa* admite only qualified atudanta, naintaina its equip-
»ant, charges reaaonable faaa, end providaa guidance and job placa-
Bient aervicea. Tha bapartaant knows better. Every school whose
owners have been convicted, every school fined or brought up on
charges by TOED has been eccredited. Yet, in this booklet the
I^partsent explicitly assures prospective students that accredita-
tion guaranteea quality. And the Oepartaent^s response to ay
clients who have been victiaised by such accredited schools is that
the students should have been better shoppers.

Because of the iiuidequacy of the current statutory schaoe and
the attitude of the Departaent, yhich eidea with the schoola

A copy of a consuaer protection <^ic bMk developed by a
consortiua of student advocates in llsw york and entitled "The
career school Con Oaaa- ie ennexed for your inforaation. If the
;Irff? Conauaer Information Center which has been dietrilmting
"Getting Skilled, Getting Ahead* mntinues to do so, tJie
Postsecondary Edueatimt Subcoaaittee ahould request thet the center
also enclose end distribute ^ies of "The Career School Con Gaae"
in order to preaent a acre balance view.

127

•galrat stwSMt*, drastic l«9i»l«tiv« chsnga is iBp«r«tiv«« rhm
City e( H«v yer)c btts prtxpom^ mmmt^tmitm to thm BSk that dmml vith
diffarmt aspect* of tlM trate acdtiool problm inclining «

Mpcinto Dof initlon far Fropri«t«ry Trado School

Loan CancalXation and l^namd sligihility for Financial
Aid for Studanta at Cloaod Trada SchoeXa

£Q1 CitA Rafunda for Propriatary Vocational schoola

Barring "Origination" Ralationahipa Batvaan Trada Schoola
and Landara

Aaauring Fiacal Capability of Trada Schoola

ParfoTMnca standards for Trada Schoola

Enforcasant of tha "Two Yaara in Existanca" saquirament
for Titla IV Eligibility

Haaningful Standarda for thm Accraditation Procaaa
Frivata Right of Action for students

Meaningfully Informing studanta of thair loan Defarnent

Ranoving Studant Loan Dabta froB tha Tax Refund Offset
Prograa For students Victiaizad by Disreputable Trade
Schools.

I strongly support these proposals for reasons that I will
outline in this testisony. A copy of tha proposals is annexed
hereto »

Z. SOUTH BROOKLYN LTCAL SERVICES' EXPERIENCE
WITH PMPMETARV TIUDE SCHOOL ISSUES

In tha past four years , our office haa reprasantad hundrada of
trade school students* We cwrantly have complaints against 20
different trade schools in Hew YorX City and have brought class
action suits against sevaral of thass/ only to have tha schools
enter bankruptcy* So far^ the fruatrating results of our efforts

Rights

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128

an prolonged litigation against eorporata aballa with littla or no
asMtai studonta vbo liava raoalvMl no training or joba, ara awMlod
vitJi dafaultad leana and barrad froa furthar aducational opportunl-
tiaa; and taiqiayara vho auat pick up tha tab on not only tba
datanltad loana but m tha intaraat and ottaar loan aubaidiaa that
auatainad thaaa fraudulant t^arationa.

In May, 1987, in conjunction with tha law fira of Millkia Farr
and Gallaghar (Barving as sEfi Jagna oo-«mnaal) , va filed ■ lawniit
in fadaral district court for tha Eastam Dlatrict of Haw York
against Adalphi Inatituta, Inc. ("Adali^i," no rsiation to Adalphi
Univaraity) and ita ownara and officora raiaing claiu undar tha
fedaral RaOcataar Xnfluencsd Corrupt Organisations (-R.l.c.o.") and
Higher Education Acta as wall as fraud, ■iorapraaontation, breach
of contract, breach of fiducial^ duty, ami Deceptive Practices Act
violationa. ( Alf i Ma Hnv. at al. v. M.inhl Tn,«.4«...«.^ , Tn- at
iX.. Civil Docket Ko. 87-1578.) The suit allegab,. aaong other
thinga, that Adalphi waa run not to provide education or training,
but aa a fraudulent achaae to obtain govemaent revenues In the
fora of granta ami loana.

Just sonths prior to Adelidil bacoaing licensed by New york
state and accredited by AlCS, ita principal owner had been con-
victed of defrauding the federal govamaent of Manpower Training
funda. At ita peak, Adalphi, a nationwide chain, had six New York
loeationa, enrolled aeverel thousanl students, and r^eived $80-120
Billion in atata and federal granta and leana. Two aontha after we
filed the lawault, Adalphi filed a Chapter 11 bankruptcy reorganl-

129

cation petition; two nmtlui mttt that, Adalf^i cloai^ its doora
natiomrida and eonvartad ita bankni^tey into a Chaptar 7 liquida-
tion* In 1989, thm principal omar ma indictad in Kav York stata
court ih KaiOiattan for unlawful ly withholding atudant loan rafunda.
HO toaliava that, nationvida, Adali^i failad to raf und afqproxiaataly
$10-ia million in atudant loana, tha huUc of vhioh ara probably nov
dafaultad. Tha plaintiff claaa haa baan cartifiad againat
Mallei *a ovnara and oparatora, but tha action againat tha achool
corporation raaaina atayad dua to tha bankruptcy. Adalphi vaa
accraditad by Alcs and natts.

In Fabruary, 1988, our offica filad (aubaaquantly joinad by
tha lav f ira of Davia Polk and wardvall aa cm teZIlfi co*^counsal) a
clasa action lawauit in Maw York Stata Supraaa Court, Xinga County
againat Harkat Training Instituta, Inc. C^ffTI*} and ita owners
alleging fraudulant inducament, sisrapreBantation, breach of con-
tract, braach of fiduciary duty, and Dacaptiva Practices Act viola-
tions. rJesaph Fi^usroft. et al. v. Market Training Institute,
ynq., at al. , Index Ho. 4539/88.) in 1989, New York state's loan
guarantee agency terainated MTI*a participation in its prograa
because of KTX*a wrongdoing in handling atudant loans. In August,
1989, in the midst of litigation, IfTl filed a Chapter 11 bankruptcy
petition which haa since been converted to a Chapter 7 liquidation.
NTI wee accredited by AIC5*

As these two casea illustrate, there are limited benefita to
students litigating within a fundaaentally flawed system where the
accrediting bodies and the U.S. Education Department sometiiBes seem

1.1

ERIC

ISO

all^Md viUi thm sohools ftgAirat thm atlidttnt-coiuntmrs * intWMt*
and vten m^iooX tenkruptcy filing* infrtm with f iMncial ram*
v«y. BraiUM proprlmtmrY txate MhooU «n fold up thmir tmntm
owniglit — thair only MMt boing tt^ ability to tap into tlia
f lov of fodaral studont aid — our aaqparianca ahova that ehancaa
for racovaring daaagaa through litigation ara alia. And any raliaf
achiavad yaara aftar tha fact can navar fully coi^anaata atiidanta
for tha Bultipla haraa dona to thaa.

XX. ussBKBoaxBaa

A. aaaarata atatatorr Oafinitian yor agoaria tarr ^ada antiftai

My clianta praaant a atrong naad and daaira for high quality
haaic litaracy and £ngliah-aa-a-sacond-languaga prograna^ and for
job training. Saaad on thair asqpariancaa, propriatary trade
achoola do not fill that naad baeauaa thay ara prof it^< rathar than
product-drivan* Xndaad, tha u.s. Sanata Paraanant Subcoaaittaa on
Invaatigationa found that tha vaat aajority of waata, fraud and
abuaa in Tit la IV prograaa vaa parpatratad propriatary achoola.
Sfifl *Abuaaa in Fadaral Studant Aid Frograaa", Haaringa Bafora tha
Paraanant Subcoaaittaa on Invaatigationa of tha Coamittaa on
Govarnaantal Affaira, U.S. Sanata# s. Hrg. 101*659, pt. 2, p, 145,
Staff Statamnt.

Tha praaant ragulatory achaaa haa davalopad atandarda and con'*
trola oriantad tovarda ragulating traditional, non-profit inatitu-
tiona of highar education. Thia ayataa haa failed to aaintain
ainiaal lavala of quality in proprietary trade achoola, and in fact
aay have f catered achool ovnera' greed and videepread fraudulent

131

pnetlcvB. For ax^^pl*, Lmiwrd Haunan, tto fermr owmr of a
c<»^tAr school in Mov Ymk convictad ot thaft of fadaral funds ^
taatifiad at a rolatad criminal trial tlwt in 1981, tha school's
first ysar of oparation, prior to racaivin^ fadaral fonda, ha drav
a salary of $10,000-*13,000/yaar. Om yaar aftar racaiving aecradi'-
tation, Z haliava hy HKTSS, and fedaral Titla ZV furals, hia aalary
skyrockatad to $700,000* Through litigation mnA i^chool bankxuptoy
f ilinga, va ara finding countlaaa axa^laa of school cmmt fortunaa
- raal astata aaqpiraa, yachts and luxury cars * darivad froa
guarantaad atudant loan funds and built on tha hacka of poor atu-
danta i^o vantad nothing mora than to battar thair livas arai thosa
of thair childran by gatting quality training and a decant job.
Claarly, tha currant systaa providaa strong incantivaa and oppor-
tunitias for prof itaaring*

Ona solution ia to acknovladga tha diffarancas betwaan pro-
prietary trada achool knisinaasas and other institutions of higher
education and to regulate thaa separately by creating a different
definition for "proprietary vocational schoola** within the HEA.
This different definition would be the foundation on «mich the
other statutory provisions would rest, thereby making for-profit
schools subject to the perforvanca standards, llsits on loan ori*
gination, etc. est forth in Recmmndations B-K*

B* Loan cmnoallatlm and rasawsd elioibilitT for f inanaial aid
far ptttdMts at aloaad tgada saheols

A rash of proprietary trada school cloaings over tha past four
years has left thousanda of low-incose students unable to complete
their programs and yet obligated to repay atudent loana which tha

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132

Mliool* r«c«iv9d on their Mhalf . 7h« attiduts My hmvm r«c«lv»d
no training w nrtif icata of co^>3.«tionr aim! muiMquontly uy not
•vor liava tha aaana to r^y tha loan* Trada achoola Uiat cloaa
abruptly alao tand to follow a i»attam of having failed to aaka
loan rafunda ovad to atudanta navar actually anrollad or vho
i^ithdrav prior to prograa co^plation. In aithar caaa, onca a atu**
dant haa dafaultad on rapaysant of a guarantor atudant loan, ha ia
borrad hy fwSaral lav frra aligibility for all futura Titla IV atu-
dant financial aid, including grants and loana. Such atudanta thtia
find thaaaalvaa in a doubla binds daprivad by tha achool closing of
tha job training for which thay incurrod tha original loan obliga-
tion, thay ara alao barrad froa racaiving tha futura financial aid
nacasaary for thaa to acquira tha training which would enabla thaa
to repay the loan«

Adalphi Inatituta, Inc* (m> relation to Adelphi univarsity) ia
a caaa in point. Based in Phoenix, Adelphi Institute had six
schoola in New york City, aa wall as achools in Indiana, Michigan,
Colorado and California* At ita cloaing in sapteaber, 1987, by i .s
own account Adalphi left unpaid student loan refunds of roughly $12
million and several hundriKS atudanta in attamSance* Deapita the
breadth of the achool cloaing problaa and tha notoriety it hai»
obtained, the D»S* Education Departmnt (**USED«) hae done nothing
to protect atudanta affected by the cloeinga.

For atudant-borrowera who have bean advareely affected by
achool cloeinga, tha REA ahould be eaended to allow for loan can*
collation, re-establiahed financial aid eligibility, and credit

133

ncord corractiom. Thus studmt* who throuqh no fault of thair
own unabla to rasplet* m progru or obtain ai rofund omd to

thra would Torn mhlm to g«t out from und«r onerous loan obligations
and «aJca a fraah atart at a lagitisata educational inatitution.
C. iilriM MO rata rafimaa far proariataCT vowtiOBal J^Mla
Propriatary trada school atudanta ara of tan anrollad into pro-
graaa vhi^ thay ara not abla to craplata, which fail to provida
adaquata instruction or aquipsant, or which train than for jobs
that do not axiat* Yat atudanta vho withdraw from such program
avan aarly in thair anrollsant find that atudent loan aikl grant
pa>-BantB as wall aa cash paysants alraady aa-Sa to tha school are
ganarall/ not rafundabla* Front-loadad tuition liibillty policias
in affact at scat propriatary schools saan that thasa schools ^aap
most of tha vonay avan if tha studant stays only a faw waaKa.
Thasa policias also saan that propriatary schoola hava no incantiva
to ratain atudanta. U5BD*s currant ragulations raquira a |2CA u£a
rafund policy for aach school notified by tha Sacratary that ita
dafault rata axcaads 30 par cant for any fiscal year aftar 1986,
until ita rata daclinaa to 30 parcant or lass. Bacausa of the lag
tins in cospiling and calculatiiHi default rates, USEP*s currsnt
sanction of a sra rafund policy aay not be iaposed tintil yeara
aftar the problem that led to tha high default rate occurrad ~
perhape not until the echool is about to closs. Also, manipulation
of default rate calculations haa artificially lQ%rer^ thm ratea
reported, thus allowing som schools with ths highest actual de-
fault ratea to elude tha ambit of the regulation. Requiring pes

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134

afift r»fund. for propri*t«iry tr^m hIiooIs mm m condition of
TitU IV oligibility votad mmxvm mm m dotorrmt to frawlulont

Many trado oetool studmt-terroimro novwr 90 to a bank to
obtain m vtutent loon; tho trodo scliooX providM tho loon applica-
tims, oftM pro-^intod with an out-of«<«t«to bank** noM, and co»-
plotoa all loan a^lication and prooiosory not* poporvork. Any
-coiuiMling* to ba dona explaining borrowora' rights and rasponai-
bilitias vis a vis atudant loans is thus laft to tha school which,
du« to its own profit-Baking »>tivatlon, has a disincantivs to
fully infors tha studsnt of ths obligation ha is incurring. Tiia
rssult is that proprietary trads* school studsnts of tan do not
undarstand that thsy havs incurrad a atudant loan obligation; in*
school -counsalors- may tall thas that "financial *id- will covar
thair costs, without axplaining that financial aid includss loans
which hava to ba rapaid* In addition, whara out-of-stata lenders
are involved, trade school students often find cossunicating with
thes difficult. For thess rsasons, and because proprietary achools
hava strong incentives to Misrepresent to prospective studente the
nature of the loan obligation, these orrangementa (known as
••origination relet ionrtips*) hf which the school acts as the bank^e
agent ehould be discouraged if not barred.

While the mk does not explicitly euthorize proprietary voca-
tional schools to provide and coiqplete the paperwork for loan
applicatione, wm*m regulatione have allowed schools to

1 1 J

135

«ori«imte* lomsm in this Mimar for mm tlM vanAmr cartaln md*
ditlom* Thmmm iM»iditlons luivs toMn brMdiwI mt* oftM than
6bBmrvm^, homvwi and tlM SMxatary haa propoaaA to looaan tha
mnditloita avan fuxthmr*

I racoman d tvo altamativa Mititlom. First, tha BXK could
ba S MW d ad to bar propriatary vocatioMl s^ioola fros originating
loana. Pr^^iatary achool att^anta who vant atudant loana could
still obtain thaa Indapandantly by going a local bank, gatting
a loan application and loan InforMtion tram tha banX, and ratum-
ing tha loan application to tha achool for complation of tha inati"*
tutional portion only.

In tha altamativa, tha Act could ba amnded to raguira tha

proaissory notas for loana originatad by tha achool to contain a

"prMarvation of claiM and dafanaaa** clauaa, ainilar to that ra-

quirad by tha Fadaral Trada Coniasion "Holdar-in-Dua-Coursa Kula**,

atating that borrovara vhosa loana vara originatad by thair trada

achool My assart against tha holdar of thair loan any clai&a and

dafanMa thay bava against tha school and to require that In tha

abaanca of such notica, tha landar or othar holdar ba held liable

for auch clalM and dafanaaa if tha atudant ahova that tha loan

vaa, in fact, originate by a vocational achool.

E. MlUriM fllMi MMtilitT ftt voeatioM l sahoola aert^fiaj
MTtisiMta la Titla IV

Tha D«S* DapartMnt of Education Inspector Ganaral*s Office
has found that USED's procaas for certifying tha financial capa*
bility of proprietary achoola to participate in Title IV funding
faila to protact adequately both atudanta and tha fedaral govam-

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mmnt. ZnsiMotn- 6mM«l'a Scptttbar 1990 Audit (Control Mo.

Xl-»OXM, mtitlwl *PiiMnoUl AiMlysis Curtifi<»tien Ptoomb itot
Adoquata to Frotaot studonta and Gevarnaaat") fmmd that DSB> oar-
tif iad praetieally §Xk aohoola that appllad to partielpata in Titla
IV prograaa and doouaaatad inataneaa of acSioola eartif iad daaplta
nagativa nat worth, nat ioaaaa, and asaata of only ona-third thair
liabilitiaa. Tba Xnapaetor Ganaral found, in fact, that USED
a^[diaalsad -a eartif ication production quota rathar than . . . tha
caraful aoraaning of appiicationa- (Audit p. 13) . vhan thaaa un-
stabla achoola cloaa -aa i«7 achoola did ovar tha two and ona-half
fiacai ysara oxaainad by auditora - atudanta ara laft unahla to
colloet tuition and atudant iMn rafunda owad to thaa. Tha Inapac>
tor Canaral aatiaatad that tha 167 achoola which cloaad during tha
pariod ha axaainad, laft 830 nlllion in fadaral atudant financial
aid "at riak." I baliava tha potential loaa ia far graatar.

currantly, tha HKA aata no apacific standnrda for OSBD to
follow in cartifylng propriatary achoola aa aufflciantly finan-
cially raaponaiblo to qualify for Titla IV aligibility. Such
atatutory atandarda ara claarly na«lad for protaction of tha
fadaral fiae and atudant liability.

Tha HBA ahould ba aaandad to aandata that tha Sacratary of
USED cartify aa aligibla only thoao propriatary achoola that bava
■uff ieiant aaaata to, iaSsL iXiA, provida tha aarvlcaa atatad in
thair official publieationa and coq>ly with tha raquiraaanta of tha
HEA and ragulationa ^nmilgatad tharaundar, including tha raquira-
■ant of Mking tiMly atudant loan rafunda. 'ma aMndaanta ahould

r«quix« that, in conjunction vlth an apfklloatlm for cortifleation
or r«wrtif icatimf a prc^iatary voeatlmal a^ool aubilt aiulltad
financial atataaanta cartifiad by a eartifiad public aoorantant,
Thm anndaanta ahould daaa a propriatary a^iool not finamially
raaponaibla uiMiar oartain oonditioMp auc^ aa ahoving a daf ioit nat
worth*

yarfnrmanoa atandarda for trada aohaela ^rtif iad to i»rtioi«
Mtt ia Titlt If

Titla ZV atudant financial aid profraaa provida a tiuga aourca
of fadarsl wnny for propriatary trada aehoola without controla to
anaura that tha achoola provida quality ^ucation and training*
Fadaral govarnaant invaatigatora ii^o hava axavinad tha axiating
ayataa for ragulating propriatary trada achoola hava unaniaoualy
concludad that it protacts nalthar atudanta nor fadaral funda«

Corrantly, no govamaantal body avaluataa tha quality of
training and aducation at propriatary trada achoola* Thia ra-
sponsibility ia atatutorily dalagatad to privata accr^iting agan-
ciaa. But accraditii^ aganciaa, irtiich ara organisations largely
coapoaad of and of tan doainatad by achool oparatora^ hava failad to
maintain ainiaua lavala of quality in propriatary trada achoola.
Thia lack of af factiva control haa baan aaaily axploited by unscru-
puloua trada achool ovnara*

Accaaa to atudant aid prograaa ahould ba llaitad to propria-
tary trada achoola with provan track racorda of gatting atudanta
trainad and into tha vork forea; propriatary achoola ahould main-
tain adaquata parforaanca in ordar to continua racaiving fadaral
Bonay«

138

Job trainli^ and plac^Mitt, thm stated 9m1s of prpprlotary
trado B^ioola, mtimlly lond tli«woivM to dbj^tiw studutte and
■aasuras. Coaplstim and plaMamt ratM ara logical ii^ieatinra of
vtetHar miai wtoola train tlialr atudanta offaotiYOly and imivida
•killa that ara in damnd in tHa privata job Mrkat. Tha BEk
ahould ba aMndad to maka pr^riatary trada achoola' aligibility to
partioipata in ati^ant aid prograsa cmitingant m mating at laaat
a «o% ooaplation and plaoaMnt rata. Varification of imatliar a
trada achool Mata tha raquirad atandarda ahould ba intagratad into
tba procaaa by which tba Dapartsant of Education cartifiaa tha
achoola' aligibility for participation in Titla IV programa* Tha
HEA ahould raquira that, in conjunction with an application for
cartif ication or racartif ication^ a propriatary trada achool subait
an auditad atatamnt cartif iad 1^ an indapandant auditor raf lecting
tha achool* a coaplation and placaaant rataa*

G* MoaurlM attforM««it of th« «»fo ia wiaf aaat raq|aiga>

■ant for Titla XT aliaibilit^^ '

Scrutinisii^ nav trada achoola bafora thay bacosa aligibla
doaa not aolva tha problM of aligibla trada achoola that ara pur-
chaaad by nav ovnara or that craata nav branch achoola. In both
aituationa, contrary to tha statutory proviaion that raquiras
achoola to ba in axiatanca for 3 yaara prior to aligibility for
Titla XV aid/ nav trada achoola hava baan affordad isMdiata aligi*
bility baaad upon tha parant achool 'a aligibility. ii»ia autmatie
aligibility haa raaultad in aarioua aimaaa of Titla XV funda.
Branch achoola hava bMn aat up vith groaaly inadaquata raaourcaa^
of tan in atataa far avay froa tha parant areola, taaohing aubjacta

115

139

•ntmiy diffwrmt frcw them tmvgfikt mt thm parmt school. Rapid
•xparaiom hy mv cmmn er by toui^ing hav» ottmn 1«4 to mi^Mm
eollft^M mttmt eoll«ction of hu9« amounts of Titlo XV t^mAm.
VBEO*m Division of Sligibility and Mrtifieatim and tha Xnapaotw
Ganarai hava idantifiad cirouavantim of tha two yaar rula aa a
priaary eoncam. immi Inspac^tor Ganaral Hanagamant Xiq^rovaaant
Raport Ho. 90-13, Tab. 20, 1990, •Unraateictad Branching ia Datri-
santaX to Studanta and Taiqwyara") . Xn ordar to aaaura that
achooXa undar nav mnarahip and nav brsnchaa will provida quality
•ducat ion and training, thay ahould, at minima, bo traatad tha
MM aa schools saakii^ aligibility for tha first ti»a. Tha HEA
should ba ravisad so that tha aligibility of trada 8cH>ools pur-
chasad by nav omars and of nav branchas of currently aligibla
parant achools vould ba contingant on »aating tha aama "tvo yaara
in axistanca* raquiraaant ai^ tha sasa parformanca standards
(dascribad in Saction F) that a nav trada achool aust nsat.
Making Tha Aoersdita tion groosaa Maanisgfnl
Tha Dapartmant of Education currantly ralias almost axclu-
sivaly on privata accraditing aganeias to avaXuata and vouch for
tha quality of aducational institutions bafora W>ay can partlclpata
in fadaral studant aid prograsa. Whila this systaa vith ita salf-
avaluation and «paar raviav* say ba adaquata for non-profit
collagas, it claarly ia not vorXing to tha banafit of sti^ants or
taxpayars vith raspact to proprietary trada achoola. As cna Stata
agancy raport has notad, »Accraditation is a paar-raviaw process —
vocational school oparatora evaluating each other . * . # Because they

140

mrm coapoMd of school oporaton, thwy com cIomt to bolng trad*

asMolatloM than ohj^ctiva avaliiatii!^ hodiu [TJhaaa aeora-

diting a^j^neiu work againat tha public intaraat by oraating tha
i^raaaion in tha public »ind that thay achoola hava baaii andwaad
by truly objoctiva ttvaluating bodiaa.* Hav York stata ConauMr
Protaction Board R^mrt, July 20, 1978, "Tha Profita of Failura",
pp. 73-3*

Tha accraditation procaaa ia a r^n^latory schaaa that avolvad
to suit tha Moda of traditional, non-profit inatitutiona of highar
education. Aceri^itora accept data provided schools without
independent verification, on-aight visits are uaimlly announced.
Theaa lax proeaduraa have proved inad^putta to ensure quality ser-
vices by for-profit trade schools^

In sany instancea, accr^itors grant approval or fail to
iaposa sanctions against proprietary trade schools evon though they
are subject to stata regulatory fines, disallowances, and discipli-
nary actiona* a school say svan raaain accredited if it has had
its license rsvoked by a stats in t^ich the school operates.

Tha failure of the proprietary school accrediting systea is
not surprising in view of the cozy relationship betvssn the accre-
ditors and the accredited. For exaaple, an accrediting agency is
free to allow its accreditation deoiaion-aaking body to be
doainatad by schools accredited by the agency, thua creating a bla-
tant conflict'^f -inter eat.

Even when accrediting agenciea attempt to diaciplina "problea
schools", thsir actioM are not effective because proprietary

O 1 1 ' >

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141

schools can obtain •ccrarditation froa sora than ona agamryi and
thua saintain •llgibillty for fadaral atudant aid fuz^ in tHa
avant that an agamsy taxninataa the school's aocra4itatien.
asai^Mnts passad in 1989 atta^t to adftrass tha acoraditation
shying jproblSB by providing that a s^iool My not ba aligibXa for
Titla IV funds if tha institution had its acoraditatien ravokad
vithin tha pracading 24 aonths. Tha naw provision craatas adap-
tions, h^iavar, that allov tha Sacratary to sacond-guass a ravoca-
tion or an agancy to changs its aind, tharaby thraatanii^ to
svallov up tha rula.

Tha HEA should bs asandad to daf ina oartain ainiaua raquira-
mnts to halp ensura that propriatary trada school accrediting
agancias liva up to thair rasponsibilitias and accredit only
schools that provide quality education and training. Ss>ecif ically,
the proposed aMndttants should require accr^iting agencies to
evaluate each branch of a school separately; to conduct annuals
unannounced on-aight viaits of their accredited schools and each of
ths school's branchss; to saintain indapendant accreditation
decision-saking bodies; and to terainate accreditation if a
school's licenss has been revoked in any state in trtiich ths school
operates* The HEX should also be aMnded to close the loopholee in
the 1989 legislation and to rectify the dual accreditation problaa.
I. BaliOT ^ liflit a wi ~*^ right ef aotien under the mtk

USED*e enforcement of the BSh and of it's own regulations has
bsen extresely lax. Vhethar froa inadequate resoureas, failure of
will or influence by trade schools or accreditors, lack of enforce-

1 17

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142

mmnt ^kmm mnmnit^lmmm any raforu •nact^d. jsvmn whmn usH) aou
taka action agalnat trada a^oola, landara^ or guarantorat tha
raa^y ia oftan a aanction againat tha achool irtiich afforda no
raliaf to iraSividual atudanta. Adding an axplicit right of action
wuld allw atudanta to act aa privata attomaya ganaral, tharaby
creating a datarrant affact aiMl aaq>ai^ing oSED'a powar to anforca
tha HEX.

^* HtmlngfUllT infoXBina atiid«iife« a f thair la^ daga^ant i-4gH f
Tha HEA currantly providaa for dafananta of atudant loan ra-
paynant obligationa undar certain circuaatancaa. Borrowara, how-
evar, ara oftan unavara of thair dafarsant righta. The only statu-
tory raguireaant concarning notification of thaaa righta ia that
thay l>a contained in tha loan proaiaaory note* Thus, borrovara vho
ara entitled to a poatponeaent in repaying their loans xaay unwitt-
ingly Blip into default, thereby forecloaing theaaelvea fron future
Title IV eligibility and damaging their credit ratinga.

Thm HEA should be amende to require lenders and guarantors
periodically to notify all student borrowers of their deferffient
rights. DaferMnte should also be available retroactive to the
date of delinquency, upon the borrower's showing that he would have
been ao entitled on that data if ha had timuX^ applied, in order
to fully clear the borrower*a record, obtaining a retroactive
daferaent should renove the borrower 'a "default status and reesta-
blish his eligibility for fed ral financial aid.

K. KfMTiM ityat loan dabta iBVOlyiaa diageaafcabl^ eroerietai^
trade tft^ x%M itmtunA i>€gsat aregraa

Under the tax refund offaat prograa, USED certifies to the IRS

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148

•tiidmt loam tHat ar* «ll«9«dly "past dua* mnA ""Isgally mntorem^
«bl«**. rtm IRS thmn tritlOioIds thm taacpa^/studmt loan toorrowan*
fadaral inwM tax ratund and Sarnaa zneoM cradit dtia, if any, and
turns tlMB ovar to I7SB>. 8ik^ allagad dal»ta ara usually pra«
judgmnt and of tan tha aubjaet of diapito l>y tha dabtor* Currant
lav allow USED to cmaidar dabtor objactions, but doaa not nqulra
USn> to rafraln froa aamling tha 198 aXlagi^ dabta involving pro-
blaa a^KMla. Thua, VSEO amda to tba IRS for offaat allagad dabta
involving propriatary trada achoola against which USED may avan
havs adainiatrativa action pending, uhich may hava closad, and
which nay hava had thair accraditation or Stata licanaa withdrawn.
Borrowars find it virtually ifipoasibla to stay USED or tha IRS from
using tha tax rafund offsat process^ avan where there is a question
as to whether tha borrower has a dafenaa to collection of the
allagad debt,

Tha Internal Revenue Coda should be amended to exclude from
the tax refund offset prograja allagad student loan debts involving
certain categoriea of propriatary vocational schools proven to be
*problea schools" such as those against which government agencies
have commence sdalnistrative or judicial action.

Thank you for this opportunity to testify. I would be happy
to answer any quaations you might hava and to provide further
detaila about my clients* experiences with Title IV programs.

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144

Mr. Andrews. Thank you, Ms. Imbolz. We'll now go to Mr.
Rerao.

Mr. Resso. Mr. Chairman, memben of the House Subcommittee
on FtetTOCondary Eduoition, my name is Arthur Besao, Ym F^^-
deni of the Continental Beauty School for 30 years, and I'm also
Chairman of the Amodation of Accredited Cosmetoloffy Schools,
AACS, Tm pl^ised to have tins opportunity to testify oefore you
today.

Over the last 5 years, Omgrrasional concern with the quality of
education provided by institutes whose students revive support
under the programs authorissed by l^e Hi^ber Eklucation Act has
incrrased dramatically. This concern is a reflection of several fac-
tors, including the dollar volume defaults and native publicity re^
garding schools violating programs' regulations.

Tbeae two factors, combined with the on^ing efforts of Congress
to reduce the budget deficit, have resulted m the enactment of sev-
eral bills which contain provisions that addre^ the issue of schools
identified as abumve.

AACS supports efforts to eliminate waste and abuse in the Fed-
eral system programs. The Coiwre^ however, has gone too far in
attempting to respond to the puolic omcems in this ar^ by enact-
ing provisions that directly elmiinate schools from the student loan
pi^ram.

We estimate that many thousands of students will be adversely
affected bv the cutoff of so-called high default schools. I believe
this is a bad policy that is contrary to the continuing efforts to
exnrand educational opportunity.

The GAO in a recent review of available studies on student Ic^
defaulters has identified the social and m^nomic^ l^k|m)und of
students as the i>rinci^ predictor of student loans default. Coraae-
toloBf schools primarily serve students who have those characteris-
tics defined with defaulters; that is, low income and minority stu-
dents.

^ould coametologv schools be treated the same as schools pre-
dominantly with middle and upper income students? I don't think
so. And I agree with Congressman Gaydoe when he says labeling of
our schools as high defaiilt schools is unfair and the legislation en-
acted based on this mi^nception should be repealed.

Mr. Chairman, as a school owner, I do not appreciate my school
being called a high default school. My school doem't borrow under
the GSL program; my school doesn't guarantee the loans; my
school does not a>llect the loans.

Mr. Chairman, tumix^ to specific items of the program integrity,
I would like to first of all pomt to the absence of integrity in the
cohort default rates utilized bv the Department of Education.

Thme cohort default rates have been widely ao^epted as a proxy
for educational auaUty, even though significant data exists that
suggests that sucn a correlation is Hise. A school is chaiged with a
high default rate even though the lender may have failed to pro-
viiSe adrauate due diligence.

In mlaition to servicing problems, instances have also been
brought to the department s attention of cases where a school has
been inappropriately charged with a default or where a default has
been registered for a school who never attended the institution. It

ERLC

15:1

145

is incredible to me that the Department of Education mi^ now im-
plmwnt a structure fvr the elimination of schools from the Title IV
progzam on sudi a flimsy basis.

AA05 disagree with the charactOTization of accrediting bodies
as nebbing more than Uie indust^ controlled puppets. In tiie coe-
metology Beld, we find our «xrediting body often is aggressive and
has e^ioIiBhed sound standards for the measurement of education-
al outcon».

Congress should conrader the enactment of l^islation clearly de-
fining &e appropriate roles ci States, accrediting bodies and the
demurtment, ensturing the int^pity of schools.

oefore the Congress enacts on such legi^tion, however, the cur-
rent flystem needs to be reviewed and understood thoroughly. The
quality of education and the State licensure proc«% ^ould be the
su^ect of in-depth hearings.

The presumption that school, that States, or a i»zticular accred-
iting body are doing a poor job in evaluating the institutions on the
baas of student loans default rates is, in our view, unfair and mis-
leading.

In closing, Mr. Chairman, I'd like to thank this committee for its
long history of support for the PeU grant and student loan pro-
grams. Our students have the opportuni^ created by these pro-
grams to chuige their lives. With an education, Uiese sbidents
have become taxpayers. To me, the student aid is a good invrat-
ment. and we can not afford to lose sight of the true purpose of the
student aid program as we continue our effort to reduce defaults.

Mr. Chairman, I would like to submit at a later date for the
record, some materials and ezamplee that some of ovlt schools use
in default reduction. And I want to thank you very much for this
opportunity to testify before you today.

frhe prepared statement of Arthur Resso follows:]

146

AACS

Arooriation of Accredited
Cotmetology Schools

TESTXnONY OF
ARTHUR RSSSO
COSITIHEHTAL BEADTY SCHOOLS

ON BSHALF OF
ASS0CXAT20H OF ACCREDITED COSMETOLOGY SCHOOLS

BBFORS TBS

Boost SDBCOHMITTSS W PDSTSECDiniARV BDOCATIOK

Hay 21, I99I

WASmNGTDN OfTICE;

53il L^ESBUBC PfKE, SUTE 285, FAUS CHintCH, VA. XTIt (700)145-1X13 FAX: M5.U3«

ERIC

1 f- ^

147

Mr. Chair»«n, »«Mto«r» ot thm Houmm SubcomlttM on
FratMcondary Bducatim, «y fmmm im Arthur IUnwo, PrMl4mt of
Contirantal Buuty ScHools. I aa also Chairaan of tba
teaooiatlon of Accraditad Coaaatology scstiooXa <AAGS} . I aa
plaaaad to hava tha opportunity to taatify bafora you today on
tHa iaaua of prograa intagrity.

I wuld like to opan my taati»ony today by thanking tha
Congraaa, on bahalf of tha atudanta who racaiva aid ureter Titla
IV, for your support for thaaa program. TOa aducational
^ortuinitiaa craatad by fedaral atudant aid hava tumad hundrada
of tbouaanda of low-in<^M atudanta into mlddla-incoM tas^yara.
I hopa tha raauthoriration will continua to aaka thia opportunity
availabla-

Onfortunataly, racant Coi^raaaional actiona have raiaad tha
apactar of hundrada of thousands of atudanta being axclud«i fro»
tha atudant loan prograss*

Over tha last five years, Congraaaional concern with the
quality of education provided by inatitutiona whoea atudanta
receive support under tha progress authorized under the Higher
Education Act has increased draaatically. Thia concern ie a
reflection of several factors, including increaaes in the dollar
volUBO of loans loat to defaults and negative publicity^ ralaaaad
by the oepartaent of Education and generated by the press i
regarding schools violating prograa regulationa. These two

If) J

ERIC

148

factors, combined vith tJDn ongoing efforts of the Coi^ress to
reduce the Federal budget deficit, have resulted In the enactment
of several bills which contain provisions directed at the issue
of schools identified as "abusive** and holding out the promise of
reducing waste in Federal student assistsjice prograas.

AAC5 supports effcrts to elisinate vaste and abuse in
Federal assistance programs. However, the confess must
recognize that these efforts, if not properly conceived, will
force even the best adainistered institutions out of ths loan
prograas. congress has already gone too far in attrapting to
eliminate vaste and abuse by adopting section 3004 of last year's
Qanibus Budget Reconciliation Act. cosaetology schools are
frequently identified as high-default schools as if they serve
the same socio'^econosic categories of students as many of the
lowest-default-rate four-year institutions* This labeling of our
schools is unfair* Schools do not default*«borrowers default.
Schools ere limited in what they can do to control, i.e., lower,
default rates. Even the best adainistered school, serving a low-
income, primarily minority population, will have high default
rates. Because of this^ the enactment of legislation
establishing GSL eligibility based on default rates is about to
result in the termination of loans to those students most in need
of financial aid.

Studies have shown that there are several factors which

149

-3-

oontritattt to a school default rats i^ich ara bayond tha
aetiool's control, ona of tha soat intloantial factors la tha
daKi9raikhiC8 of tha studant population. Whathar a stiidant is
vtiita, black or hispanic; aala or faaala; aingla, narriad or
divorcadJ bov aany dapandants tha ha or aha has? conss frra a lev
or hi^ socio<^onosic background— all tbasa factors diractly
inflaanca tha likalibood that a ati^ant vlll dafault on a a$L.
It is unraaXlstic to axp«:t a school sarvii^ a minority, low-
•conoaio araa to hava tha saM dafault rata as a school serving a
Middla-class i^ita naighborhood. Tliara ara savaraX casas whera a
nusbsr of schools hava tba sans ovnar, tha saaa basic
adainiatrativa staff, and tha saoa dafault managamant plana, but
hava significantly differant dafault ratas. Tha only logical
•xplanation t^^ cuis phenomenon is tha difference in student
pc^lation.

If Congress and the Department of Education do not to give
aignif leant weight to a school's population in determining
eligibility for ash^m, tha moat needy elSBants of our society
vill be denied accaas to quality education* zt is tantamount to
tha "red-lining" of educational opportunity. The very class of
people who need assistance the most will be excluded if default
rates alone ara used to determine a school's quality.

AKC8 has supported the development by tha Department of
Education of improved training and an increased number of program

150

-4-

ravieva to help schools addrau problau in the adRinistxation ot
tha aid prograaa, in fact, AACS offara financial aid vorkahopa
to anaura that its M«har inatitutioM ara kapt up*to-^ta on tha
continuous changes in financial aid. In addition, four years
ago, the Assc^iation instituted a Loan Counsel Task Force to
hatter address the neede of students. Further, the Association
vaa an active partici|»nt in the Private Career School Default
Managaaent Initiative which produced a Default Managasant Manual
and a series of default xaanageiBent workshops. The Association
has also supported tha principal accrediting body for
cosoetology^ the national Accrediting Cosmission on Cosmetology
Arts and Sciences (KACCAS) , in an effort to weed out schools not
interasted in providirg quality education* These efforts/ ve
believe, have borne fruit. We also believe, however, that
schools specifically focused on providing services to lowincooe
students cannot be expected to achieve default rates remotely
aimilar to those schools serving the educationally and
economically privileged* The reauthorization will be a isajor
step away from Lyndon Johnson's image of expanding educational
opportunity if schools are allowed to close for no reason other
than the fact that they are located in and serve low- income
communities and their students.

Nr. Chairman, turning to specific items of program
integrity, I would like to first of all point to the absence of
integrity in the cohort default rates utilized by the U.S.

ISl

-s-

iMpartamt of Sducation. Thmmm cohort default rates have hmmn
vidaXy accepted aa a proocy for educational quality^ even though
ai9nif leant data axlat ai^aating that euch a co-relation ie
falee. A school is charged vith a hi^ default rate even though
the leiMler or servicer on the loan say have failed to provide
full due diligence. I drav to your attention the recent
agreesent betveen the Education Departmnt and the Resolution
Trust Corporation (RTC) allowing for the restoration of
guarantees on loans where the guaranty has been lost due to
failure to perfon due diligence, liie restoration of guarantees
on these loans seans that the school which the borrower attended
will be held accountable for the default, even though the default
■ay have been caused by the failure of the lender or servicer to
perform dus diligence*

In addition to servicing problems ^ innunereU&le instances
have also been brought to the Departaent ' s attention of cases
where a school has been inappropriately charged with a high
default or where a default has been registered for a student who
never attended a particular institution* It is incredible to me
that the Departaent of Education has been allowed to promote a
structure for the elimination of schools from the Title IV
program on such a flimsy basis*

AACS believes that it is for fche CQncnress t:Q

enact eme rt;fnev legislation c^elavii^ th^ cut-off of high-default

152

-6-

SfiluafiJLJI* MditionaX thought ami study vust givm to thm
probl«a of Mmsuring tho quality of a i^rtieuXar school •
Graduata ratas, collation rataa, actual dollars in dafault, cmd
tha aocio-aconomic charactariatics of tha studant body soust be
factorad into any appraisal of a school's adainistrativa
capabilitias.

AAC3 disagraas with tha charactarisation of accrediting
bodias as nothing sora than industry-controllad puppats. In tha
mssatoXogy fiald, va find that our accraditing iKsdy often is
aggrassiva, and has astablished sound standards for tha
awasuraaant of aducational outcoaas. AACS supports tha anactmant
of lagialation claarly dafining tha aB>x'opriata rolM of statas,
accraditing bodias and the Dapartnant of Education in assuring
tha integrity of schools*

Before tha Congress enacts such legislation ^ however, the
current systeis needs to be reviewed and understood thoroughly.
Ths quality of accreditation and the state licensure process
should be the subject of in-dapth hearii^Fs- The presumption that
atatas or a particular accrediting body are doing a poor job in
evaluating their inati tut ions on ths basis of studant loan
default rates is, in our view, twfair and misleading. This
authorizing subcommittee, vith its expertise, should be the
source to correct these misunderstandings.

158

-7-

In closing, Hx^ chairun, X would liXm to share with you
soM sumary Information on tho oharactaristics ot coraatoloqy
schools « This infor»tion is taksn fros a 1988 papor prepared hy
JBL Associates:

—Over 200^000 students are currently enrolled in
cosBstology schools;

^•Approximately 61 percent of the students who enroll in
private accredited cosmetology schools graduate « (This compares
with 44 percent of those enrolled in community colleges.)

X would also li)ce to point that the cosmetology industry in
and of itself is a $25 billion industry, es^loying
over 750,000 people nationally. Our schools are a fundamental
part of this industry, and our survival should be seen as a
legitimate^ worthwhile goal as this reauthorization moves
forwards

I would be happy to respond to any questions you or other
Members of the Subcommittee might have*

(301A200)

ERLC

ERIC

l^y^ BEST COPY AVAIUBU

155

"Tlw CaiMT Sdieol Con Gam*" is a joint pra^ of
South Brooidyn Legal Services. New Vbtk Lsm School,
afxi Vpcationay E(&jcatkx^ intornttition Network

*8airth KMWyn Ugil SirvloM of^

iMMnoome people as ol the Citf-vMe j^ogiam iri Commui%
Acten for Le|^ Seivtoes, ln&

4lew VDfk Lmv SetNHrt an ui1)an aMfs<»ton^
sdm>f. tolled ne»rtt^ hrari of New Vbfk Cn/s govenmeni and
bt^ness cSimrict.

^VJEJJi. is a ooaitifHi of edu^tofs, mnnuirMy groups, and
am>meys e$^>tohed to advocate tor efleciive voc^k^
servioes for re^dents of New Ybdi Sto^.

AH characters and on^izatkms r^esanted in
*nta Cwwr Sdwol Con Gmit'' are ficfonid. f^y
resan^iance to rmt charade w organizations is purely
ooifK^iddntal.

This comic book has bam nnada possiUa by a generous
grant from the f^cbett Bomie Foundation
and has been desired spedficaUy to re^ teens and
others who may have resKiing difficuKias.

For information at)out how to obtain Mtttional copies of
The CmerSctaoi Con Game", write to:

South Broc^n Legal Serv^
106 Court Street
Brooklyn, ftew York 11201
Attention: Consumer Unit

Text tff St^Then A. Newman

ArtbyMarfaMottt^

UttMing by Anne Moltoia

Prpjed CoonSnator Efiiabeth imfiote

Uteruy ConsuKant: UnttB Brown.

Adult Base B^ication Staff
Devefopnwit CowUnator,
City Unii^rsity of New \^

156

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167

rm HOT 5lStf^t«R ¥t*Kt A
VERY SCcECTNE. lOU S6£M

uice iciiop or f^rso^j

V& C<Hn.D PLACE. W OME OP

Oi« Berre»? JOBS. -oiHioi OP
tnese Soumds bcst y<v«
CoMiPtneK ftQSMM^* ^cm^rAhn,

[ USTEP*. VOU CM 00 IT/
, IT W£>4'T COST to/ A

TtimG. GOV£RHMl^r^
IG€T vX)c the job >^t

IV<MJC** P'tLO DID

, 'CO^PtrrERS ARE

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158

CANCCLIJD ^

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IMP ^ p}t*rf ]

CtTA. Midi*
Lira vau P»flm<li

Our \P Ydvop^i^ ^

•PLACEMENT-

UfFJCE

i;;r)

160

PONT GET RIPPED OFF

^R£MEMBER> IT )5 EASY TO PRO^^lSE SOA^OMt A GOOD JOB. SUT HARD to
DtUVER, NiA»4T SCHOOLS ^. py - QyAuTt ' Taikihiiw& AND _2fi MI fiWD

GOOD J0B9 fOR THt\R STUOEMTS.

fALl FOR SMOOTh TAUC^ SCUDOtS KHO^N TrtlkT PtoPLt ARE.
DESPERATE W GOOD JO&S, AND THEY USE YOUR HOPES AND DREAMS TO
CATCH VOU,

UWtiL You HAVE. TJME TO TAICE IT MOME TO READ tT. if T«E SCMorfL
WON'T LET You TAICE THE PAPERS >^>*ftt, DOH'J IXv^t »T. iT does NOT
HA^E YOU«. ©esr iNtei^CSTS AT HEART.

REMEMBER :

IF You Si&M FOR A LOAN AND THEN CAN'T PAY iT BAC<, HERE^S WnAT HAffENS*

^fOu WON'T GET CREOiT TO Byy A CAR OR &tT A CREptr CARO,
*^fOgR Fei>eRAU TAX REfVND PAaY ©E TAKEN 9Y THE. I.R«5^

•^Yoy MAY ee Sued for rtit money.

^ If TOU WAMT TO OC TO A GOOD SCHOOL LATER ON, YOU WON'T &£ A«i.E
TO Cir A LOAN OR GRANT.

ERIC

k; :; best copy available

161

rirvmriimWYORK^lTO POSAlAn^AMENrotfEamTO

AnaL3, 1991

^ussacftrntiBB^ptopettm. Fgr-piofii ttide Khod ^tdei^ 1^
pmuies of ftn tt^^ nd ^ ptyu^ Jobi, in^
dki iioi need €f warn, ffivmod 1^ bnAn

iiIiim«cly,macrteaaedbec»»^dtiaB]M1oias. On • penaal tevd, Cir^
ffacfaing mK M ^ u m c w ia te iiodeM* Uvcs iadaae n ooeraiti ftianeai
(taafrnd^eesad fim te citaatiofal ijrilBm nd the
ftemidvcs, nd loo of ^ in ^vemmem ^ a&F^
fiia^tetet opfTiTkwii

Oe a luitaal Icvd, d« cdlqw of the H«bei BAi^^
of d* teifwt kao gamaiy t"^^ i temmm i aiw faow fl^ eoormoo* coei ol itudem toon
deftiihs ducHm flw embo "rao IV fvofiBnt ite IftiM Sim Depostmott <tf Educsckn
and ihc Ckaenl AOGOOf^ ORk» ftit piopfi^

thti is twice as hifh as two-year, ooo-pn^ tnsthutms and fcor times as iHitt as four-year.
Mm-piofU uistitutioRS. Qommnett invotipton Im mnim^^
IV Statutory and ivftdatory sctesne, wteeh has staadai^ aad comndi oficmed towards
ivgulaiinf tmfitioR^, va^^scRt l&stitiatoos €i hV«r edoo^, Ins boea unable to detect or
piwcM ftaud airf 1^ by ttoacn^wkais i«ipfk^ Indeed, fte U.S. Senate

Pemanem S^taMonioae oo Investifatioos* most CJt areinatio n of waste, fwtA tod abose in
the gimimd student toaa piogiaffl focused sekfy on prpfvietuy tmdc sdw^ because the
vast maiot^ of TWe IV abtties occur at those Kbfi^ Sfifi 'Abuses in Fedcul Student AkS
PiOTiams". Itannts Before fto Per ma ne nt Subcommittoc oo InvtstijMioia of tfic Cwumtrtec
on Govemmcnial Afhiis U.S. Senate, S. Hrg. t01-«9, Pt. 2. p. 145, Staff Si«emeni
9/12/90.

This document praposes amendments to the Higher Education Act iit daSer to:

• piottct itudous and pnyviik fodress fa studems already victumied by unscrupulous
pn^tfidsnf irsite sctools;

• limit paiticipaiion in federal st»^ aid projiains to those piopnetary trade schools
with pjoven track teoiKtds erf cratnini stiaknts and fettu^ them jobs;

pitvcnt the taaqjayer from further sdni^iini ftiwtoJent proprietary trade schorfs;

• ssm^thentlK Amcrknworkfona^by fMi«f9huadsedsof mi^^

doOan for use by students uteniing ijuaUty trade achooJs, coUeges «vl universities.

The d wam w it b offai&ied aroond paitktilto pcobteoa conoeming prapnotiy trade
schools proposed viutkms, induing specific aw eo dm c nts to the Higher Educatkn
and other rdevant sstfutes.

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BEftEl90Cl.

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oyniwiftprf tho bun, t^^n a ^howtn^ tbtt ttw
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t^cie cue tfatt ibe icbool ongkuted tbe bseo.

(ii) £ubii» o obttiis d» reqwvd en^gsiKkss
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tny tenii9 of nieb 40 Agrrcnieni, iopbidinf but
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oU!)eTwite« end ^ not {wo^nspl tbe borro^iTi 's
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Seentary*! ohgnatioo iquSatio».

ERIC

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178

Mr. Andrews. You're welcome. And we look forward to that sub-
sequent submi^on.

Our panel will conclude with Mr. Blair. Good afternoon, Mr.
Blair.

Mr. Blais. Mr. Chairman and member of the committee, thank
you. 1 m President of the National Association of Trade and Tech-
nical Schools. Today I'm here representing not only NATTS, but
also the Association of Independent Colleges and Schools. NATTS
and AKS are the Nation's two largest organizations that represent
private career colleges and schools. Together, we represent 2,200 in-
stitutions that are educating nearly 1.5 million students in 130 dif-
ferent career specific fields.

Clearly, for student aid programs to continue to fulfill their mis-
sion, we must demonstrate to the American people the effective-
ness of the Federal programs and restore their confidence in the
mtegnty of these pnsrams.

Three years ago, Mr. Ford challenged this sector to clean up its
act. Attached to my written testimony is a copy of a detailed report
card which outlines the actions NATTS and AICS have already
taken. We have a record of effectivenes and reform.

While we can by no means assume that all the problems have
been «>lved, il is al «> em ential to recognire that very real progress
has been made. NATTS and AICS have undertaken numerous rig-
orous reform efforts to addr^ the m<wt common criticisms of pri-
vate career ooU' ges and schools and its system of accreditation.

These criticisms include that nothing is being done about bad
schools, that there is little or no oversight of institutions or pro-
grams, that there is no consumer protection to saf(%iiard the inter-
ests of students and taxpayers, and nothing is being done to reduce
student loan defaults. Myths, lack of awareness or political expedi-
ent have enhanced these criticisms.

Most people simply do not realize, or choose to ignore, that the
process has been improved and that very dramatic chafes have
been put into place by associations such as NATTS and AICS. Ac-
tions by our associations and accrediting commissions and legisla-
tive and r^ulatory reforms that we have propraed and supported
have helped reduce student loan defaults and abuses in the student
aid programs.

Since 1988, for example, 13 out of every 1(M) NATTS and AICS
schools reviewed lost their accreditation. Another 249 closed their
?PP">_fof a total of 433 schools that are no longer accredited by
NATTS and AICS.

Our amociations have been willing to go to court to have accredi-
tation removed. Since 1988, NATI§ and AICS have fought court
cases against 19 schools at a cost of more than a million doUars in
legal and related fees.

NATTS and AICS have also increased our oversight of institu-
tions, ti^tened our standards of accreditation, initiated rigorous
pnsrams to dissuade institutions from applying for accreditation
m the first place.

Our much stronger guidelines have addre^ed such critical issues
as recruiting practices, student refunds, admissions testing and
branching. We have also developed rapid response and fact &ding

ISi

179

teams to visit schools with reported problems. We follow up on stu-
deat complaints as well.

NATTS and AICS have implemented aggressive and sucwssful
student loan default reduction programs, addition, NATTS and
AICS have supported strong legi^tive reform proposals m the
Congress. For example, we have backed bills dealing with student
loan default reduction, equitable student refunds, postsecondary
graduation and placement rate disclosure, and measures to prevent

accreditation jumping. , .1. . j j-

Despite these advances, NATTS and AICS understand that addi-
tional reforms are needed. We have submitted to your rommittee a
comprehensive reauthorization proposal. It contains reform provi-
sions that would help bring us the rest of the way.

The most important component of our reform j^ckage would be
to clarify the unique oversight roles and responsibilities of each of
the members of the so^adled triad. As you know, the triad consists
of accrediting bodies, State regulatoiy bodies and the Federal Gov-
ernment „ . J
We believe that we must clarify these responsibilities and
strengthen the powers of each member needs to carry out and es-
tablSi expected outcome measurements expected of each of those
components. Through the changes we advocate, accrediting bodies
could better evaluate the quality of education. States could better
monitor business practices and protect consumers, and the 'fderai
Government coulci do a better job in determining institutional eligi-
bility for Federal student aid. , ,

Each member of the triad must rely upon the other players to
meet their responsibilities. Consequently, our plan ^ contains
standards by which all members of the triad could be evaluated
and held responsible. It would also improve commumcation be-
tween the triad members and, where appropriate, the guaranteed
loan agencies. , ^ , . . .

I firmly beUeve that by adopting th^ additional ngorous but
fair reforms we can ensure that taxpayers' dollars are weU spent,
and only institutions that provide a quality education are eligible
to participate in the Federal student aid programs.

I would like to close by briefly mentioning what we thmk should
be some additional gui«fing principles for rrauthorization. We be-
lieve that the changes you make in financial aid programs must
recognize the vital role they play in determining the quabty of this
Nation's work force. ^ ^ , * •

Private career coll^ies and schools are an important element in
the education of America's work force. They provide the type of job
specific technical education that American business demand and
our economy needs to remain competitive in a global marketplace.

I urge the Congress to remember that the Federal student aid
programs must continue to foster the great diversity of opportum-
ties that our pluralistic system of postsecondary education ctflers.

I also want to emphasize that Congress should not discriminate
between programs of different lengths. Some people advorate bar-
ring students enrolled in short-term programs from elifflbility m
student financial aid programs, but many career specific ^ucation-
al programs do not require 1 year of schooling, let alone four. And

O 1 c r

ERIC

180

many students simply can not afford to be out of the work force for
a long period of time.

It would be counterproductive to make it more difficult for these
^ participate in the program that is best for them.

For 25 years, the Higher Edui^tion Act has opened doors of op-
portunity for millions of Americans. The important decisions you
make in the months ahead should ensure that those doors remain
open for the next generation of students, and they should help
fSl!? ''forld class work force our economy needs to thrive in the
1990s and the twenty-first century.

Thank you, Mr. Chairman.

[The prepared statement of Mr. Stephen J. Blair follows:]

ERIC

9.- 1

181

TMtimny Bmterm tim
SubcoalttM cm PoetMCcmdary Education
CoonlttM on Education and Labor
0.8. Bousa of Rapraaantativas

Staphan J. Blair ^ Praaidant
HationaX Aaaociation of Trada ami Tachnical

Schools

Nay ax, X99i
9;30 a.m.
2X75 Raybum Bmiaa Offica Building
Vaahington, D.C.

Mr* Chairsan and Mtabers of tha subconsittea* I aia the
Prasidant of the national Association of Trada and TachnicaX
SchooXa (NATTS). Today I as hara rapresanting not only NATTS, hut
aXao tha Aaaociation of Indapondant Collagas and spools (AI<^) .
KATTS and AICS ara tha nation's two largast organizations that
rapraaant privata c^raar colXagas and schooXa. Togather ue
rapraaant 2,200 institutions that ara aducating nearly X.5 million
studants in X30 different caraar-apacif ic fields. I appreciate
thia opportunity to ahara ay thoughts vith you as you consider the
reauthorization of the Higher Education Act*

Z baXiava it is aapeciaXly appropriate that you are taxing
this morning to focua on tha need to protect tha integrity of
fadaraX atudant financiaX assistance programs. CXaarXy, for
student aid prograaa to continue to fuXfiXX their aission, ve oust
damnstrata to tha Aaarican paopXa the effectiveness of tha
fadaraX progress and restore their confidence in the integrity of

182

thm prograu.

This Mming I muld like to briefly putlimi our
AMociAtiora* mttoxtm to iapravo thm quality of ^ueation ottmrmd
mt our schools and reducing pr^lms surxmmding studsnt aid
prograss. Attachad to vy writtan twtiaony ia a copy of a
dstailad "Raport Card," which outiinaa tha actions KATTS and AIcs
hava alraady taXan*

A RgCORD OF gFFgCTlVBMieSS MiP HgfOMi

miila va can toy no saans assuM that all tha problau hava
baan aolvad, it ia also aasantial to racognize tha vary raal
prograss that has baan aada. For tha last aevaral yaars, NATTS
and AICS hava undartaXan nusaroua rigorous rafora af forts to
addraaa tha Boat oommon criticisu of privata caraar spools and
its syataa of accraditation* Thmmm eriticiau includa:
1} nothing is baing dona about problaa schools;
2} thara is littla or no ovaraight of institutions or prograss;
3} thara is no consusar protaction to safeguard tha intaraata of

studants or taxpayers ; and
4} nothing ia baing dona to raduca studant loan da faults.
Myths, lacx of awaranass, or political axpadiancy hava
anhancad thasc criticiams. Moat paopla aiaply do not raaliza
or choosa to ignora that tha procaaa haa baan inprovad and that
vary dramatic changas hava baan put into place by associations
such as NATTS and AICS.

Actions by our associations, our accrediting conissions, and
legislative and ragular.ory raforva that ve hava propoaed and

183

pit^ortad h«v« bslp^d xmduem stuiNuit loan d«fault» aj^ abuM of
atudant aid prograM*

Slnca 1988, for axaMpl«» 13 wit of avary 100 HAITO and AICS
aohoola raviamd loat tbair accraditation. Anothar 349 cloaad
thair doora, for a total of 433 adboola tliat ara no longar
accradltad by KATTS or AICS. itost of tbaaa acboola couldn't aaat
our atandarda for curricula r financial oparationa or achool
vanagaaant.

ftir aaaociationa bava avan bean willing to go to court to
hava accrediting raaovad. Slnca 1988, NATTS and AICS hava fought
court caaaa againat 19 achoola at a coat of aora than $1 aillion
in legal and related taaa*

KATTS and AICS have alao increaaed our ovaraight of
inatitutiona, tightened our atandarda of accreditation, and
initiated rigoroua prograaa to diaauade inatitutiona froa applying
for accreditation in the firat place- Our auch atrongar
guidelinea hava addreaa^ auch critical iaauea aa recruiting
prtcticea, ati^ant refunda, adaiaaiona teating^ and branching.

He have alao developed rapid^^raaponaa and fact-finding teaaa
to viait achoola with reported probleaa. We follow up on atudent
coaplaijita aa %rell»

NATTS and AICS hava iapleaentad aggreaaive and auccaaaful
atudent loan default reduction prograaa. In addition, HATTS and
AICS hava aus^orted atrong legialativa refora propoaala in
Congreaa. For axaaple, we hava baOwd billa dealing with atudent
loan default reduction, equitable atudent refunda, poata«:ondary

184

graduation and placMHuit rata diacloaura, and saaauraa to pravant
aceraditation jumping.
FRgypSftM ***** anpiTiiMmL mmvm

DMpita thaaa advanoaa, wrTS and AZCS ui^aratand tliat
additional rafona ara DMdad. 1«a hava aubadttad to your
<^nlttaa a c^ratenaiva ^authorisation propMal» It contalna
rators provisiona that vould halp hring ua tha raat of tha way*

Tha Boat iaportant coaponont of our raforv packaga wuld
clarify tha uniqua ovarai^t rolaa raaponaihilitiaa of aach
aaabar of tha ao^llad "triads" Aa yc^i toow, tha <*triad«»
c»>naiata of tha ararwliting hodiaa, atataa ragulatory bodlaa« and
tha fadaral govammnt.

Wa baliava va auat clarify thaaa raaponaibilitiaa and
atrangthan tha povara aa^ saabar naada to carry than out and
•atabliah axpactad outcoaa Maaiiraa* Throu^ tha changaa va
advocata, accraditing bodiM could battar avaluata thm quality of
aducation, atataa could battar monitor buainaaa practicas and
protact conauaars, and tha fadaral govamaant could battar
datarviiM inatitutional aligibility for fadaral atudant aid*

Each nabar of tha "triad" auat raly on tha othar playara to
Mat thair raaponaibilitiaa* Conaagumtly, our plan alao containa
atandarda by vhich all aaabarv of tha triad could ba avaluatad and
hald raaponaibla. it vould alao ii^rova cMVunication batvaan
triad aai^ra and, vhara a^ropriata, loan guaranty aganci«a.

I firmly baliava that by adopt ii^ thaaa additional rigormia,
but fair« rafoma va can anaura that taxpayara dollara ara vail

ERIC

185

•pmt mnd only iiuitittttion* that provid* a quality ^csation ara
allgibia to participata in atudUint aid pro9rasa.

I muld liXa to cl«m by briafly santioning what wa think
ahottld ba soM aMitional guldii^ principlaa tor tha
raauthorisation of tha Hi^r Education Act.

nm baliava tha ehangaa you aalca in financial aid prograsa
sust racognita tha vital rola thay play in datarainii^ tha quality
of tha nation* a vorkforca. Thay ahould alao racognita tha ii^ct
thay hava on givii^ ailllona of Asaricana tha chanca to achiava
tha Amrican draaa*

Privata caraar collages and achoola ara on la^rtant alaMnt
in tha aducation of tha Asarican vorkforca* Thay provida tha typa
of job*apacific, tachnical aducation that Aaarican buainaaaaa
daMAd and our aconoay naada to main ccm^titiva in tha global
aarkatplaca*

X uxga congraaa to rasaabar that fadaral atudant aid program
mat continua to foatar tha grwit divaraity of opportunitiaa that
our pluraliatie ayataa of poataacondary aducation offara today.
Raapaoting tha graat divaraity of kinda of inatitutiona and kinda
of prograaa offarad* I «l»o ««t to aiqihaaisa that Congraaa
ahould not diacriainata batiiaan program of diffarant langtha.
Sraa paopla advocata barring studanta anroiiad in ahort^tan
program fztm aligibiXity in atudant aid program* But mny
caraar-apacif io aducational program do not raquira ona yaar of
M^ioolingt lat alona four. And mny atudanta aiaply cannot afford

I'M

186

to bm cwt of th« wxMorcm tor a long fwriod of tlso. It vouXd t>«
countorproductivo to ute it »or« dif ficfult for thoso Etudent» to
participato in tha prograa that ia baat for than*

For 25 yaara, tha Highar Education Act has opened doora of
opportunitiaa for »illiona of Jtowricana. Tha i^rtant daciaiona
you Bake in tha aontha ahead ahould anaura that thoae doora raaain
open for tha next generation of atudenta- And they Jt ^uld halp
build the world-claaa vorkforce our econoay needs to thrive In the
1990a and the 2 let century.

Thank ycu.

i I «

ERIC

187

Rn^MfiFS fMon«iA8SOCi^f^Tridt«id Technical Sc^^
AMocMon of MaptndM Co^oges and School

0M9 0^m^cali,HW • &i«i3SD • WcifWigCrv DC 30036 •

MMTOai. ASMCTamflw ««« MB TMPfficai, scaoflLS

sljumbolsl

JDC

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lUy If 91

188

Thm Asaociation of Indaprndant CollatgM and Schools (AXCS) and tho
Vatimal Aasociatira of Trada aj^ Tac^mical soUooXa (HUTTS) hava
baan, ara curxmtly, ai^ vUl main vtolly cwaittad to ii^ovii^
tha qpaality of p oa t a a c on da r y adueation md aa a raault tneraaaing
imblic conf idanoa. JkOhiaving this ronfidanoa raqulraa cnr^ninal
prosaoution of tJtoaa an^g^ In frai^ulant activitiaa, idiathar
thay ba achoola, collagaa, tmivaraitiaa, atudanta, or financial
inatitutiona*

Any institution that an^agaa in frai^uXant practioaa unf ortunataXy
brings into quastion tha quality of poatsaom^ary privata earaar
institutions, provida ovmr ona-half of tba aJUllad vorkars

antaring tba worltforM aacb yaar.

Tba soat coason c^iticiraa of privata carasr schools and collagaa
aras

X« Nothing is baing dona about tba "bad applaa."

II • Tfmrm is no ovarsight of institutions or prograas or, if
tbars is any, it is wafully inadn^ata*

III* Thara ia ik> consusMu: protaction to aafaguard tha intarasts cf
•tudsnts and tas^yars*

XV« liothii^y is baing dona to radum studant loan dafaulta*

In tba past thraa yaara, syths, a lacX of atmranMa, or political
axpadiancy hava anbancad thaw paroaivad problaas. Most paopla do
not raalisa that tha proeass has changad and that organisationa
audh ss AIC5 and NATTS hava a history of avar*incrassing
sf f aotivanass •

For Bsny yoars, actions ^ thaaa two assoeiatima, thair
acoraditing covaiaaions, and lagislativs and ragulatory raforas
pn^posad and supportad by thwa associationa hava halpad
substantially to isprova tba quality of adueation and raduca
studant loan dsfaulta and abusa of atiidant aid prograv*

In 1989, Rap. williaa Ford (I>-*lfX), nov Chair«an of tba Bousa
Education and tabor craaittaa, mBkmA us to tabs ths nacasaary
actions to instill confidanca in privata caraar achoola* In
diacuaaiona vitb otbar Kay Unbars of Congrass, it bacsM claar
that our associations and thair accraditing coaaissions vara
axpactad to taba tba laad in idantifying «bad mpplM,'* aliminating
tba ascond*rata and aboddy adueation that occurs in a minority of
schools, and raducing studant loan daf suits.

rhm following is a raport card of dsciaiva ata^ AICS ai^ KATTS
hava takan ovar tha past savaral yaars to addrass tha
congrassional and ]^lic concamas

189

— Pr0B Jmnoary 1988 until 1991, of tbm inrtltutiowj
«SS«SltSby *1C8 and/or Mms, 433 •itb«

fnaTtS. .ccr«4it«d list by th« Accr«litlBg

SSiMion actipn), or cloMd (Sm AttachMUt #l>j

T« «Lh> last thxmm ymaxm, mn avu-sv* 13 of avary lOO
icc^iiU\^l.W;w«» lot thair accraditation.

fim-ti inir ^^-'^nn aaaraMlyilY PUnyirt CCT l Tt nctiont tP

— AICS and VXXTS ara dadioatad to thm intagrity
icSaditnt^ procaaa and anmirlnq quality aducation.
^•STavw Silling to go to court to bij^
i^aditation ra««fad irt»ai» n«:a«i^. 8i^ "g'^
ninataan court eaaaa hava b^n fou^t Iqr tM Aira ana
SSS^Sc^iS Co«i..ion. at a «^
■iUien in lagal and ralatad faaa. A't??^?*.^.--.. to
MaMplaa of Sort eaaaa undartalcan by SWTS "»« to
SSld CO— judgaanta. {Saa Attwa«ant 02)

— Davalopaant of rapid-raaponaa/ fact-finding taaaa to
JSii^Sl. witS raporSd P^'"?-'
rMpoid iMadiataly to a«rioua allagationa raiaao
againat any aehool.

~ Raquirad audita of financial atataaanta to anaura tha
accuracy of raportad data.

— Haguirad workahopa for •PP^i^^SuS^and
ruaval. Thaaa wrkahopa ara daaignad to in^roduca ana
^itUa applicant aclMwla to tha axpactationa and
rigora of tha accr^iting procaaa.

MXTTS f ouaht all Taaporary Baatraining Ordara (TROa)
ISSt Sin-JitutlSTSpaaling Aecr«Jiting Co«i«iion

1 r)-

i ■ ' •

ERIC

41-092 O-W-

190

tecisioM In thm eoorts to thus mtop acran to Mwrnl
fimsicial aid. ml* raprumts • slfnif icmnt al^ift*
Priw to tSilo policy, it was atandard oparatim
proe^ura tm HATTS to auppc»rt a aclM>oX*a in ordar
to haXp a a^iool raiaa its atai^tarda.

Tlia raaiatama of TBOa haa alvaya baan tba policy of
AICS.

— Sngagad in afgraaaiva cmirt caaaa to dafand AccnrMiting
Coaaiaaion actiona to ui^old intagrity of tlia atai^arda*

Sp9A up dua procaaa vhila protacting rigUta of ^ppmml.
Tha procaaa haa baan raducad fm an awraga of tvo
yaara to aix wmtha.

Trainad taaa laadara to anaura tliat tha quality of tha
procaaa ia aaintainad. Taaa laadara haad up aach ac^ool
viait and ara aainly raaponaitola for anauring that tha
viait io carriod out with auff iciant rigor and that a
achool ia adharing to our atandarda.

— invaatigatad hi^ dafault achoola idantifiad hy tha
Dapartsant of Education on Saptaabar lo, 1990. Tha
Oapartaant had ralaaaad a liat of tha 89 inatitutiona
that coapriM 50 parcant of tha atudant loan dollara in
dafault for privata caraar achoola and collagaa. Of tha
53 a^ioola accraditad by AICS mnd RATTS, 27 hava eloaad.
All hava baan raviavad by tha Dapartaant of Education;
and tha A2C5 ai^ HATTS achoola haira baan raviavad by
thair raapactiva acoraditii^ aganelM. {tea Attachaant
#3)

;perg^«ad eeeparafeion of Aeeraditin<;i Coaaiaaion vith Btata
and fadaral aaaneiaa whan prqbTgM M^jMi,

Stata licanaing aganciaa, fadaral agaiwiaa and accraditing
ooasiaaima ara c^nonly rafarrad to aa tha 'TRIAD.*
Through ineraaaad enaunication, thaaa thraa bodiaa ara
raaponaibla for tha atatrardahip of tha intagrity of
inatitutiona and fadaral prograaa, aa vail aa iiiprovad
conauaar protaotion. In ordar to atrangthan tha rola of tha
TiOAD, HATTS and AICS laid out tha following racoaaandationa
in our propoaal for tha raauthorization of tha Ri^ar
Education Act:

Clarify rolaa and raaponaibiXitiaa of aaabara of tha
TRIAD.

— Davalop a ayataa of atandarda by vhich all aaabara of
tha TRIAD can ba avaluatad.

191

— xnexMM eoMnmicatlon through tlwi •towring of ^itional
•pproi^iata, loan guarmty agwicia*.
rtm .yrt« in pl«c» noir c«binlng «>• '•'"l**'''^.*^^?** °*

JSidltlM boaiaa (tha TRIM)) mat im 4f*»*»f»- . .2*1^^^
S^Slttad to fulfilling ttoair obligatlww to
Sii^bf^ducation awl rawjva infarior achoola in thalr aactor.
•nd will eontimw to do oo.

TTT T».«-«nirT »~~°« r-

Th. xeeraditlna CMBiaalona hava ■trangthan«l guidalinaa in

SS"f"tha paynant of coraiaaion. to paopla to racruit
■SSd^. S tUM, inatitutiona wara p«»itt.d to
SyVoeaaiaaienad aalaa paraon to bring atudanta to tha
Soor. Tbia la no longar tolarated.

HATTO:"'in8tittttion8 aay cmly uaa aalariad ^loyaaa in
tlMlr adaiaaiona activitiaa and will not pay
eoniaaiona to racruitara for thaaa anroll«anta until a
atudant haa • raallatic aaauranca of cca^lating tha
pregraa.

AICSs mia Owaiaaion narrowly proacrihad tha racruiting
and adiaiaaiena practicaa a«>loyad by ■J*" /^^i*
all»lnatad tha practica of ■f^S"*^'^'
lUeruiting and adaiaaiona wara atrictly li«»i*?f *°
•eheol «5loya«a only and r«cn»itara wara prohibitad
from adainiataring adalaaiona taata.

S^^^i^anaion of tactlitiaa without apprepriata
ov«^i^and branch eaiqniaaa «»t wiura infarior in
quality, l-ack of auffieiant ovaraight in thia araa
allowad aoaa -fly-by-night- achoola to «>P««*»-
Ovaraight haa now bean ineraaaad aubatantialiy .

SSTTst*^Tha Coi»iaaion haa raaff IrBad ita iitandarda for
branch eamntaaa to anaura that tha •f^*
raapenaibla for tha branch? to anaura that a branch ia
fully raviawod prior to accraditationf and to raqulra

ERIC

192

that tte progruCs) mrm thm mm or r«lat«d

to, tho pro9x-u(s) of fond at ti}o mIh ooliool* xf a
bramli eajipito la found in vioXation of any atandazd^ all
torandiM and tlia Mln a^oel ouffor tHo eonaaquanooa*

AZCSs Tbo Cooiaaicm mly pond to tho procMoing of ona
teandi applioation at a tlM. Thio lunially tafcoa a
yoar. Tlio i^miwim aloo nquino an ovaloatim oita
viait bofon tba teancb opona and anothor viait aftar it
c^ana.

Probla:

StocniitMnt of non**hi9b achool gradoatM vho trara
incapablo of auccoodix^ in tbo program in vtoieb tboy
iron mnllod*

Solutions

Thm CoMiMion prohibita acboola froo rocruiting
p r oapo ct iva atudanta in or naar valfara offieu«
unaf^loysuit linaa« food ataap cantara, and hoMlaM
ohalton.

AZC8 and HATra contractad vith tho toarican Council on
Education to raviov and approvo ind^pondontly all taata
that could bo uaod by HKSTS mM AICS acboola in
datonining tba capabilitioa aiul admiHion of all non*
high achool gradMtM Cability-to-bonofit m ATB
otttdonta) * AICS roquiraa that all ATB atudanta ba both
oounMlod and tastad.

Pnbloo:

Schoola oorvod high^riak atudanta and had a tracX racord
of high dropout ratM and a lack of aupport aarvicaa.

Solution:

Tho HIiTTS Accroditis^ Ccmiaaion roquiroa that any
inatitotim aarvii^ hi^i-riak atudanta ouat provida tho
a^rcmriata auj^rt aorvioM, aueh aa day can,
roMdiation, and oounaaling, to incrMM tha
probability of atudant a\xceMa to tho highoat dagroa
poaaiblo.

(PIMM rafar to AttachMnt #4 for aMitional oxai^plaa
of hlCS and HATTS Accraditing ConiHion activitiM.)

O QYir tta,?*^ thsrmm von, wm hmv alM auPBort^ atrietar
MtMMroMioto oMnciM. and mmauMr orotagtioB,

ISM aoaociatioM of AICS and VKm and thoir work in
logialatlon havo involvod airport of apMif ic billa
having an ispact oni

ERIC

— stxMt tuition refund* — cmly th«

iMisUtiva inltiativo to dof in* fair utA aqultabl*
rSi»ds for otudwito. Tbo apvelfie inr(9(»Ml
■ionif icsantly lnexoM« tl>« uKnmt of rotund to •
stodwit aftor vlthdraml.

__ simxnrtad lnd«p«idontly-dovolop«l tojitii^r program for
aMUty-to-b«jofit {ATB) otudwito.

BapportmA Uaamm and Sanata atiidant loan daf ault-
radoetloa lagialatloB.

— SuDDortod aandatory poataacendary graduatiim and
pli^nant rata dlacloaura to aapowar conauaara In aaJcing
aetuid oboicaa of poataaeondary inatitutiona.

— SRdoraad lagialation U»at grantad authority to tha
SSartwt of Bducatiwi to auapand twqxwarily atudant
alSfSSa at a achool %«»ara tbara hava baan aXlaflationa
of fraud and ateiaa. (Saa Attach^nt #5)

^SS^STS;." ?. atudant aid rrftgTMM, Bfl lA n i QM .

«f-|.-»«nela i <"-«^etnr«. (Saa AttachMnt #6)

n4^r«i«rt« ^ r ii,€«yf«tion to aaaiat atudantB in ttw i r

m an af fort to provida con.™'Vi«»,^^l"!''^*i5S9"S;3S
to oalact tba rl#it caraar and achool for tha», in
SgS^Sliahing fitrtllW fflmttl WfXim AhMd. ^-JJ*?.-
200.000 eepiaa hava baan diatributad at no charga through the
"s. ConSaTlnforMtion Cantar, .aXin, tha book ita «oat
raquaatad publieatlMi avar.

in addition, HATTS diatributad coplaa of tha booX to all
rtatapublic aaalatanea aganciao to aaaiat eaaavorkara In
Sir Munaaling. And ct^aa i«ra .ant to tha Paraian lailf
for dlatribution to Daaart Stora troopa.

Thia valuabla ouida previdaa atudanta vith a atap-by-«tap
SoSaaa to uSa in loSting and contacting tha privata c^aar
^SS^ ^ achool that will provida tha training <J>«y
^tfonTatudanta abould art whwi avaluating tha achool;
infexaation atudanta naad to undaratand tha achool' a
nmiiraaanta; and dataila on how atudanta can obtain
iSuSal aid and tha raaponaibllitiaa iovolvad with • If*"-
£T1aMtU%»!l Siaon hka callad gtUlTW mUtA, fitttlM
jihaad "tha boat eenauaar raaourca guida availabla.

ERIC

BEST COPY AVAILABLE

194

(Atta^nmt #7)

liMM«nti luitiafciv. ifhieii !■ ondMvav with botA

Zn X996, thTM yoan hmform thm DmurtMnt of Eduostion
munnmd ita DaitAalt Rsductim Znitiativw, priv«t« cMTmrnt
m^»ol 0r9MistttioM joliwd togsttar in moppiart of tte c^rmK
Training roundation's (CTF) Dofault XamgvMiit Znltiativa.
Tliia mm dona at a tiam vten avidaroa waa jttat baginning to
daamatrata that dafaolta in tte loan pragraM Mra grovii^.
mara vaa emfuaion abrat bO¥ to aiw^rt atudanta ao thay
Mttld not go into dafault. CTF convan^ tha firat joint
eonfaranea of rapraaantativaa fre» all ^artieipanta in tha
Stafford iMn Prograa. Tha guaation vaas Hov do va Mka
thaaa program vorX? 1^ anavara ineli^ad;

DavaXopad tha Dafault Managasant Hanual to aaaiat
achoola in tha adainiatration of tha financial aid
prograaa and lialp inatill a aanaa of ovnarahip in
atiidanta ragarding thair financial ohligatima.

Conductad Dafault Managaaant l«or)cahc^ i^ara sora than
5,000 achool adainiatratora hava laamad to raduca loan
dafaulta.

Piabliahad 'I Own My Loan* atudant guida book, vrittan
aapacially for atudantai nov in ita third 100,000-copy
printing, atraaaing tha i^)ortanca of aanaging a atudant
loan.

— Davalopad Dafault Pravantion vidao Kita. TOia includaa
a guida for achool ataff and antranoa and axit vidaea
for ati^anta asqplaining tiM iiqx>rtanca of rapaying tha
loan and tba aavara eonaaquanna of dafaulta,

~ Expandad prograa davalopMnt to now ineluda aconoaic
lifa akilla for atudant borrovara*

Tha racoaaandationa containad in tha Dafault Hanagaaant
Xnitiativa bacaaa tha baaia of tha Houaa and Sanata dafault
ratection lagialation and tha D^artaant of Bducation^a
dafault raduetion ragulatiraa. ^ia Initiativa ia ona of
tha raaaona privata caraar achoola and eollagaa hava
oonaiatantly lovar^ thair dafault rata ovar tha laat thraa
yaara.

# # #

ERIC

195

•f*. m^mf ^mat in Bind that vm will nmvmr co«pl«t«ly jlljlnat*

2Z?4r^Sl't?h«v?V .yrt.- of owr.lght tl»t coatinoally

SfiSl^r^J SSiS2f"'«»JSS ^S.?- .X. -oin, to .triv.
tor axcsllMOi'

propMTing ?^i!°^t2St tf^timiwl quality .nd

^JT^ *^4!^'fi^SS^; rSllM^oS^ thoir action, back thU
S!^':tt:a,SlKJS;'Sr?Sr].t^l. .tap. tax*, by KATTS
and AICS to pr«vwit fraud, mtm and atas««

196

433 HATTS-* AND AXCS-ACOUEDrrED
JMSTlTUnmS HAVE CLOSED, TOLUNTARXLY tfnKDRAillf
OR HAVE B££N REHOVED FROM THE ACOIEDITEO LIST

RATTS AICS
Accndltml Accr^ltad

S^oela ScAoola

Mo. of accr^ditad miooXa as of

January I, 1988 1,195 1^03

1988

Bnovad froa accraditad liat 14 !<

Voluntary vithdramla 8 10

Sdioola that cloaad Ifi

32 25

RMovad trM aouraditad liat 22
Voluntary vithdravala 21 10

Sdioola that cloaad 24 L

72 3

Raaovad from aecraditad liat 10 3

Voluntary vithdravala 24 i

Schoola that cloaad Z5 5fl

109

1091

*RaBovad fro« amraditad liat *
voluntary vithdravala 3
Schoola that cloaad 12

TOTAL HO. OF SCSOOLS R£I6>VE0,

CLOSED OR WITBDRAWN 243 190

In addition to tha abova, of tha inatitutiona accr^itad by tha
National Accraditin? conlaaion of Coamtology Arta fi Sciancaa
alnoa 1988, 107 hava baan ramovad tram tha aecraditad liat, 123
hava voluntarily t#ithdrawn from accraditation, and -117 achoola
hava cloaad.

*Baeauaa tha aecraditad inatitutiona eitad for raaoval by tha
RATTO and AICS Aeeraditing Coniaaiona hava tha ri^t to dua
prooaaa and »ay appaal thair roMval, no final numbar ia availabla
at thia tlM.

ERIC

197

EXMfPLSS or LEGAL ACTIOMS DEFENDlUC MMOVAL OF ACCREDJTATXOM

TIM Acerwlitlng cammLmmitmm of thm A««>ci«tion of I«»|||P^«>«J^
Sllw^ sSbool. and thm HatloMl A*«ocUtion of and
iShSSl^ool. bav. iMd con.ld.rabl. wcc. in d«li^ with
■^ooU providing poor quality of wJucation, ■iraanag«»«tt, or
i^JSaS^flSSSiil viJbility, and the that »»«2.«nf«9f>^i»^
2S?^p!oiSSion of caaa. of «"«»,i"^^^i"L"SS^^*!f"*
aldercoraM ara th. *ola purvlw of th. O.S. D.part»mt of
StocSlS^.SrDwSiSt^ JtiBtic) and th. statM <.t.t.
attomaya gmaral}.

Bxa»la. of j«at a f «r of th. lawauit. daf.nd.d on b.half of th.
AIM and HATTS Accr«Jitin9 CoBmlaaiona .inc. January 198B
ineluda:

HATIOHAL ASStXriATXOH Ot TRADE AKD TECHHICAL SCHOOLS

Accrediting Cosmiaalon

HXTTS ha. Mda aionif leant laianga. in it. afgr.«.iy. l.«al
dJfSaa of^ccr«sitatien action, in r.c«»t ywr., including an
^^!|>Md e^^t to eppoM twporary retraining ordw:. and
JS!Sl2rr5jSSioB..lS^ll • vluingnw. to incur
SiSivOudicial diaput... Thw. mm.
^eol*. juriadlction, irhieh incrwM. th. coat to 8ATTS.

MATn no lengar agraM to th. .ntry of tmqwrary retraining
2JS.^rS£oo!; ara ra«ov«» fro. •fS'^fi'^^,^^?* ^
■nit. TaMorary ra.training ordwra aHo»»d fwlwal twAing to

Sitinu. Sh««S^ii«itatio«lo th. "^f'i- j^^j^JSi''*;^-^

ttTocmmm. nam. i*an HATTS mova. a Msboel*. atwr^tation, matts

a iwhiolTaffert. to ra»in fully aligibla for funding
irttlla tha latrauit ia p«iding.

X. nmwmm^ nwH«4«^.«l d/h im Cmr^r f>|«»«»tiinitj«a School V.

SfSSiil: MM a branch in J*- »«vad.. and offarjKJ

sreoraaa in hairrtyling and caaino daaling. COS fil«l an
SKSJlS foTrS-iil! of aocrj|dlt.tion ■f"",""*
for final approval of it» branch in 1987. In J""*
S.l2ion Ktad to dyny

Pan.1 uphald thi. dacialon in Augtt.t 1918. «» ba.1. for th.
S5iiSw». U) ■i»l«ading Spaniah-languag. adv«rti.ing; (2)
S2f iSiSoiS in COT^a eatilSg kad «irellB«»t agra«ant routing to
S S^l'a Sition rafund policy and th. r.Xationahip b.tir.«»
tte ^.cSool and br««di; <I) fiHttra to auppiy
l^eraatien daaonatrating tha wdiool'a financial aoundnaaa and

ERIC

198

stability; md {4} failtm of thm mmin M^ioel to mxmreimm adaquata
ovmiglit of th« Inran^. An anipla of tht lattar probXaa wm
tba braidi*a "laaralng raaourea etntar*~an rom vith

anfillad bo^uhalvaa.

On taguat 24, 1988, COS filad auit againat HATTS, tba Accraditing
Coaaiaaim and thm Am^l* Panal In atata court in iiavada. wa had
tba eaaa traaafarr^ to tba fadartl diatrict court in Laa Vagaa.
Finding tbat aubstantial avid«nc» mup^r^A tba comiaaim'a
Araiaim and tbat a^ioola ai»l tba mablic vould ba banrt by
eantlnuiao tba acbool*a araraditatira, tba diatrict raurt danlad
ora^a aetion for a tai^erary raatraining ordar and ita action for
a praliainary injunction raguiring tba raatoratioa of tba Mbool*a
accraditstion imila tba eaaa procaadad. TharMftar, va fiXad a
wtioa to diaaiaa cos* a lawauit. Ratbar than raapond to tbia
aotim« COS vitbdrav tba lawauit.

2, Dalaway V^llw Srftoel of Trades, Inc. v. NaUionMl Aaaoeiation
of T^ad^ mnd Technical ftghoolg. Tha Ac»:raditing Cmaiaaion votad
to dany raimral of accraditation to tha Oalavara Vallay S<^ool of
Tradaa (DVST) in January 1989. Thm A^iaala Panal i^^ld tbia
daoiaion in March 1989. Tba baaaa of tba daciaion vara (1)
DVST'a failura to daaonatrata a acmnd financial atructura; (2) tha
aobool'a failura fully to aako rafuf^ payaanta to atudanta in
accmrdanea with acnaditing atandarda; mnd (2) untlMly rafund
payaanta to atudanta. In April 1989, OVST filad in bankruptcy and
aovad for an injunction in bankrvq^tcy court in Pbiladalf^ia,
Pannaylvania to raquira tha raatoration of ita accraditation. Va
obtain^ a poatponaaant of tha praliainary injunction baarii^ and
praparad to vigoroualy dafand againat DVST*a aotion for
praliainary injunction. Shortly hators tba baarii^, DVST alactad
to drop tha aotion and diaaiaa ita lavauit. 'nmaf tba daciaion to
dany ranaval of accraditation vaa laft ataiWIing.

3. Bailia CMimifi^tipna, I.td. v. Hational a^ao^ia^ion p^ T^^da
flirt Tighn^*^^ SfAatiia, In April 1989, tbo Comiaaion daniad
ranaval of accraditation to tha bailia chain of broadcaating
a^ioola in tha Ifaatam Unitad Stataa. Tba A|^aala Panal uphald
tba ttaaiuien'a daciaion in July 1989. Thm b&aia of tba daciaion
vaa Bailia*a failura to daaonatrata financial stability and
aoundnaaa aa indicatad by ifaaXnaaa in ita financial atataaanta and
a failura to pay faaa and duaa to SATIS.

In Auguat 1989 ^ Bailia filad auit againat HATTS and aought an
injunction raguiring tba raatoration of ita accraditation in
fadaral diatrict court in Saattlor waahington. Tba OHirt did
initially iaaua an ordar which taaporarily raatorad Bailia* a
accraditation ponding anotbar Appaala Panal baarii^ bacauaa tha
court found (aiatakanly, va baliava) that tba firat A^Mla ^anal
baaring bad baan pro^urally flairad. Aftar tba isauaiw of this
ordar, anotbar A^iaals Panal baaring vaa convanad vitbin tvo vaaka
of tba oeurt*a daciaion. Tba JMppaala FMtal again upbald tba

199

CniBlMion. B«ili« than • »otion to Mt a»id» thi»

tecision, but tlw court danisd Baili««« aotion. Thu», tho
CcsBlaBicm** decision vm Xaft standing.

H* than f Had a Botion for a«s»ary j«lg«ant which wmild bava
raaolvad tha caaa ««>l«taly in HATTS'a favor. Bafora tha court
SSld^S .""iS^ on cir w.tion, Bailia filad in bankruptcy.
BailU •eugbt imauceaaafully to argua that tt»«*«*o~*ic •^■y
aJoviaionof tba bankruptcy lava pracludad KATTS troa withdrawing
tailil'raSrSitati^ Silia failad to paraua tha banlaruptcy
SiSiSdinS^nSvar an«farad I»TTS'. motion for amo-ry judg-nt.
KZ^^iw tha bankruptcy procaading waa tarainatad, and in

SwrShTSS. f SaUy ca»a to .n and whan th. district
court grantad aumaary judg»ant in VKXTS'u favor.

ySSl^B?: tha WiaSion vltSd to da ily gin^l'^oval to tha
£aSS o"S; SivSInd instituta of T«:hnologyCCIT) to Tol^fO;.^
SiSr in August 1989, tha J^wlm Panal ravi««d tha Coaaia.ion's
SeiiioB and diaagraad with two of tha aight grounds for tha
S^iiio:.^ tSrSSis. th. App.al. ^anal r««nd«l tha aatt.r to
tha Comisaion.

In Octobar 1989, tha Coasiasion raconsidarad ita aarliar dacision

in liaht of tha Appaals Panal's raviaw mnA dacidad again not to

Sait f inSl appr^il to tha branch baaad upon th. six ground, that

STJiiiSs P^l had uphald.

^l«tion ot atudanta in tha achool's program

^icaa llanagaaant (3«.5%) and word Procaaaing ("•«*) (t^f

SSrStmSt to-s>cplain- thia daf iciancy by noting that tha aala

S>tud«ita had bZ^ haraaaii^ tha faaala word procaaaing

SLlInS^ S; taniinating tha B5N progra.) ; (2) poor placaaant

in tha Building Sarvicaa llanagaaant prograa (45.61); (3)

toa^oata iStructionsl squipiiant (studsnts vara baing -taught-
SSC^^aw in light bulba «id plug in air """^i^J^":"':
poor Btudant attandanca; (S) tha achool's ««ilura to -bida by it.
STattMdanca policy; and («) aislaadii^ advartiaing (-Jobs!
Jobs! Jobs!"}.

CIT filad auit againat HATTS in Octobar 1989 in Jif^i^
«urt trxolado, Ohio. Aa usual, tha school sought a taaponry
^astraining ordir and praliainary injunction raquiring tha
JS5«uS orKs accJaditationT Tha court -otions.
Tha sfdiool than alactad to voluntarily dismiss its suit.

a ej^. .., Pwnmw. Inc d/b/a S «»«»»>c Taa«»te«T Tnatituts V.

I ' Urtha Eicacitiva Co«ittaa -of tha Accraditing coi«ission waa
Mda aw^a of a schaaa by which Si«Jax

Sold a^a to fadaral financial aid^to an ^n*«>f^»;»»^i»**2^52*
group ™alsaly claiming that a facility oparatad by thia group

FRir

W9M m mwpmrmtm elaurora oi Slad«x* Thm scImm had bmmn cAia«l to
mxrs^m Attwition by s«Mtor Uoyd BmtMn's otticm. rtm
SMcutiva COMAittM iMtt«a M ordMT to »hw eauM «#hy tlia school**
accreditation ahould not ba ravoJtad in Oacaabar 1989. After
raviaving tha s^!iool*a raaponaa, tlia Craaiaaion votad to ravoka
tha achool*B accr^itation in Fabruary 1990. Tha Appaala Panal
ui^ld tha Coaaiaaion*a daciaim in April 1990.

In Nay 1990, Siadax filad auit in atata coxirt in Tama. Bafora
Sia4*x*a raquaat for praliBinary injtu^iva raliaf rauld ha haard,
tmmvmr, Siadax voluntarily diraiaa^ tha auit and filid in
banltruptcy. In tha bankruptcy cmirt, Si^ax aou0it pralisinary
injunetlva raliat raquiring tha raatoration of ita aeeraditation.
In July 1990, tha bankruptcy court daniad Sixidax'a raquaat. Wa
than f iiad a aetion for auaaary jud9sant to raaolva tha caaa
coaplataly in NATTS'a favor* Siadax did not raapond to thia
aotiohr ana inataad withdraw ita lavauit.

6. OQPES. inc, d/h/« Coldan Stata School of Qxnard, California v,
^'^^^ff!^^^ ^aqciation of Trada and Tachnical Schoela, Thia ia our
mat racant. caaa. In thia caaa, tha Coisaiaaion bagan a c«i^lata
raviav of tha achool aftar a changa of o%marahip. In Octobar

1990, tha CoBBiaaion votad to dany tha achool ranawal of ita
aeeraditation. Tha Appaala Panal upheld thia daciaion in January

1991. Tha baaaa for tha daciaion imra (i) aavara financial
waakimai (2) failure to pay tisaly refund* to atudanta (ever
9170,000 rnainad unpaid at tha tisa of the ^peala Panal
hearing); (3) a defective enrollaent agraeaent; (4) failure to
deaonatrata that tha a^ool^a refund policy vaa in coaplianM with
acer^iting atandarda; ai^ (5) failure to pay aecreditir^ feaa«

Golden State fili^ auit in federal diatrict court in Lee Angalea,
California in late Jenuary of thia year. Tha achool am^t a
temporary reatraining order and preliminary injunction requiring
the reatoration of ita accreditation, and alao aaaerted claim for
over $500,000 in daaagaa* ^e court denied the mtion for
teaperary reatraining mrder en February 4, 1991* On February 18,
1991, the eourt denied Coldan State 'a eotim for preliminary
Injunction. In eo doing, the court atated that Golden state 'a
clalma vera totally without eerit and auggeated that they might be
euanptibla to a aotion for auaaary judgaant* Va inforaed the
judge that we would file e aotion for euaaary judgaanti and in
fact, did ao. The achool a9reed to drop ita lawauit.

Baakn^ptey ia the only area whera wa have ei^ountered difficulty
in defending the deciaiona of th» Accrediting Ceaaiaaien. Zn
January 1989, a bankruptey ^irt in Freeno, California entered a
preliminary injunction againat NXTTS which required the
reateraticm of the aeeraditation of the Golden state Sohool in San
gemardino and Freano, ^lifomia. The banlcn^tey eourt*a
deeieim waa prineipally baaed up^n ita view that the executory
ecmtreot previaiona of the bankn^tcy lawa precluded the

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201

vithdnml of ««a»ait«tlwi »rtwr« • •Otool hmA tilad in b«*ruptcy
orlor to tikm CmiMien'* d«ei«ion. Vm appMlad thim dMialen to
thm fadwal dl«trict cmirt in rr««no, caliXornU. unteremwtaly,
tte district court agrawl with th« bankruptcy court. *» ■_f"«i*'

iTliv. now wl-^- to til. «^*L?SlSnl

AraMU, and w awaiting a daeiaion. «a Framo pracadant
SUoad tha coMlaaion to raacind an accraditation daeiaion
involving tha national School of Baalth Tachnology in
Phlladaliihla, Pannaylvanla in August 1989.

Tha Imadlaant that tha bantaruptcy !•« !»«»•«• ''^•P^
^^it^fevan aBandaant to tha bankruptcy coda paasad in tha
VlSSi^^^t^SBM Cangrm,*. That a-«Kl«nt eWly
fSSJaS tha uaa of ona potantially troublaaoja P»^«»»i«^^«'.*»»
JSSStS iSwa-tha autoaatic atay. Howavwr. tha a^nd^nt did
nSt^licitly addraaa tha axacutory contract provialon at iasua
in tha Fraane caaa.

ASS0CZAT3ON OF INDEPENDEHT COUPES AHD SCHOOLS
Accraditing COMsiaaion

MSSg Martar DS. Diatrict Court. Piatriet of Haw Jaraay,
fK??j5ti5SSS^'8S:«4;-L. Thi. action ». ^
Dlatrict court in Hawark. Haw ^^-ISJ

injunction for ran«ml of tha accraditation of tha Firat School of
S«arat«rial and Paralagal Studiaa, locatad in Faaaale Park, »aw
Jaraay. aiul daclaratory judgsant that AICS haa violatad
rSSStioM Of tha D^rt^Tof Education, and for da>agaa undar
SSSurt^ co-KaTnTtwt cUiM. charging tha dafwdant. with
an^arina into a conapiracy with cartain othar Mr^liatlona ana
SdSiHaS lo aSbS «^-p.ting achool chain to co»^taj«fairly
with tha plaintiff inatitution awi to «>n«»oli«a tha bnainaaa
achool fiald in Maw Jaraay. OwJer tha antitruat eeurta. plaintiff
dawidad coi^panaatory and punitiva daMgaa and corta. No apacific
auunt of daaagas waa atatcd in tha eeaplaint.

DBon «otion of dafaiwlanta on Octobar 3, 1984, tha parta of tha
plaint daallng with tha failura of AICS to grant accraditation
toFirat School wara atrickan aa soot and tha alli^ationa that
AICS fails to aiaat Oapartoant of Education raqulrajMnts for
nationally racogniaad accraditing aganciaa wara dia.ias4id for lack
of subiact sattar juriadiction. Thm court grantad tha plaintUf
laava to fila an a>andad co^laint on tha rasainlng counts. Tha
plaintiff filad an a^ndad complaint in J^i^
daaaoss on tha antitrust airt coaaon law tort elalsa ano wia
Dil^ict court disaiasad with prajudica tha aaandad ce^laint.
Ai^llant appaalad to tha Dnitad Stataa Court of Appaala for tha

202

Siixtf clzmlt the dimisul vith larftjudicw of itM mmmAmd
eoaplaint tojr tin trial court mm m samtion tor a^llant's
diaco wry aboMS.

19ko Court of Appoalfl ontftrod judgM&t cm OctcdM: 12, I9i9,
ttffiralog tho lemr owrt** docisim in tmwr of tho •Moeiatlon
on Octotar 12, 1989.

2. tto^ County C^llooo v. Agaoeiatioit T«d«>*n^t^ gp]

mnA Se^oaXm. ifi iH« » oniiott. sogrotMY , Ullit Pd atatof «?t lli rt""^
of anicmtlon. mPQK. Calif omio Dooart— nt of Edueation. rCXI.
nOKI, Willi— itohla, Xgtimi Pii-^etof, gai. nft* mtwi jf^j^ H,

Piiillitio, nroeutiv Piroctor. xics, Tliio vm an actiiai filod in
DOMiter, 1997 in a Qiaiitar 11 rowganisatim proMotfing in tha
U.S. Banlcnvtoy C ou r t for t&a Smitliam Diatriot of California in
San Dioqv in wHich tlia tanlcn^t ^^ibter, north County Collaga,
which had bMn daniad rainatatasant of aoeraditatim followii^ a
dianga of ovnarahip, amght (a) injunctiva raliof to roatora tha
acoraditatim and (h) daaafoo for violating tha autcmatic atay in
thm Bankmiitoy Coda vh«»i AICT affirwad tha danial in an a^aal
haarino in hpvil, 1987 shortly aftar tha Chaptar ll petition had
baan filad ^ tha achool* ClaiaM in tha co^laint vara
co^panaatory daaagas in tha aua of $1,500,000 ai^ imnitiva
daaagaa in tha au» of S3 « 000 ,000* Tha cantral iaaua in tha caaa
vaa vhathar *accraditation* ia proparty of tha bankrupt dabtor*a
aatata which vaa affactad by AICS' April i 1987 danial of tha
appaal*

On croM sotiona for auvaary judgaantf tha court, by ordar datad
Juna 34, 19S9, vaeatad tha AI« J^il, 1987 affirwanca of tha
danial mm a violation of tha autmatic atay and ordarad AXC5 te
avaluata tha acheol for mnaidaration of a nav grant of
aecraditation at tha Ai^ruat, 1988 sMting of tha Accraditlng
Conlaaion* A aita viait waa coi^uetad and tha achool vaa
achadulod for a apacial appaaranca at that aaating of tha
Cnaiaaion.

Tha iaaua of vhathar accraditati'^ ia proparty of a l»anXrupt
dabtor'a aatata and idsothar tha autoaatic atay in tha banJcruptcy
lav appliaa to aducation aecraditation vaa a noval quMtion in tha
Ninth Circuit.

AXC8 and tha Truataa of Horth County Collaga antarad into an
Agraaaant and Mutual Ralaaaa on Juna 14, 1989, in vhich tha
Truataa agraad to dimiaaal vith prajudiea of tha action against
AZCS* Tha Agraaaant and Mutual Rslsmsa did not raguira AICS to
admit liability or to pay any daaagaa.

3. Lmig Soach ColloQO of ftustnoss. Inc- ^soeiftion of
Tt^mpmnAm^tL t^llmq^ fi^ ffffrfffflti MTTraillf g«— lm«lfln. William
aonn^, flo^tfyy Muestiow, nonsld Vsldbftu«r and fihirlitv
Jasmsx* I7*S* Piatrict Court for tha Cantral Diatriot of

ERLC

2' "J

203

£ Cer^im ^ AIcs for brMcb of fidueiary futr,

any liability. "•5i^«^k™mv 12 I9as. fmmd that tliara wa»

to turn August aMting of tbo Ctmmimmim.

SrSScMT teo«ch of fiduciary duty, and braach of ii^Uad
Sv^nt of good faith and fair daaling.

!ir.dTnirtSiJ.iL5rjs^S'arcrid^^^^^

SrSainSSf not abla to aHov any da«ga. raaulting fro. tha
Coaalaaion'a pravioua actions .

SJlinUI! S»i!«Si.«.l.r.prMMt.ti«i of . coort roporttw

ERIC

204

proQm In i^ich tHr ^tdmts mir« mrolI«d and tor vioXfttion pt
ths Iioiiisimai Mnstm^r ProtMtion* lmt goramli^ unfair and
dmcmf^iym trmda pnetleu. AZCS vu addtd mm m dafandant in July,
itM. Tlia anount of daaMos elalMd ara $129,009 plaa rafnnd of
all tttitim, txmtm of aqoipMnt, taactboofca, ai^ othar faaa
ineorrad by tha plaintif fa in anrolling and participating in tha
a^ool'a court r^qporting progran, togathar vitli attOTMya* faaa
and eeata,

Thm claina againat AICS ara baaad on braacli of contract, tort or
nagliganca and joint vantura, agancy or partMrahip thrariaa.

Co-dafandant Aoadiana TM^ical Mllaga fiiad undar Chaptar 11 of
tlia Onitad Statw Banlm^tcy Coda and ia not an activa participant
in tHa aattlaaant diaouaaima or litigatim at tliia tiaa. In
amttoar pr o caad ing with Aoadiana, tha Iton^iting cooiaaion
aunand^ tSia instittttira*a aecraditatira* An appaal to tha
Banair Board \mm t«qperarily anjoinad in July 1990 on tha groui^
that tha auapanaion aetira tahan by tha o^^aaion violatad tha
autoaatie atay ^roviaioa of tha o.s* BanJomptcy Coda ainca
Acadiana vaa in Chaptar ii atatua.

Suhaaqimt to tha court action, Congraaa paaaml lagialation idiich
qMoif ically axa^itad actios^ by aoeraditlng aganclaa froa tha
atttonatic atay proviaiou. Tha Coniaaion than procaadad to
achadula tha Raviav Board haaring. Jleadiana ttnaucoaaafuily amght
anothar THO on tha groonda that tha nav atatuta orald not ba
appliad ratroactivaly. In Ai^il 1991, Acadiana filad for Chaptar
7 diaaolution.

6. Dtbori li Zi g gQ V. Wattaraon Gallaoa. eayarCom. A««ociatiQn nf
rndaoandant CQll«cia« Md tehoola. Mm^^ p«»^1p, n^ fmrrlm and
PWi 1-agr St^arior Court of tha stata of California, Comty of
Ban Diago, CaM No. IU5469.

thia eaaa vaa filad on Octobar 29, 1989 by Ka. Ziseo, a forsar
paralagal atudmt at wattaram Collaga, a achool accraditad 1^
AZC8. Plaintiff aa«lca daaagaa against AlOi undar nagliganca and
Mgligant niarapraaantation thawiaa. Sha claiM aha vaa
vrongfully diniaaad frm tha achool* a paralagal progran baeaoaa
0tm had baan critical of ita quality*

At thia tiM, tha ovnara of tha achool ara att^^ing to aattla
vith Ha. 2iiso. Ko trial data haa baan aat, and diamvary ia
undarvay. Tha plaintiffs hava bmn finad for failing to rMpond
to Intarrogatoriaa in Octobar 1990.

7. BridgtBi it Bit v. Jagfaraon Bnainaaa Collaqia. g^,, , tmitad
Stataa Diatrict court fw tha Waatam Piatrict of Tannaaaaa, C.A.
ito. •9-3DB4-4B.

AZC8 ia a dafandant in a claaa action lavauit filad by f onar

205

f int MUM of aetim a^iimt kICS im for allo9^ vioUtion of tbo
TomiWMO Cmouanr FrotMtim hot. spMif ioally, plaintiffs
alloM ttat hies* aeonditatim of JaffaroM Btiainaaa Collaga vaa
■wtarlally Blaiaading and fraudhaant." rtm aaomd oauaa of
action Allffgo* tliat AXffi temcbad a contract with tha dafandant
oobool, and tl>at plaintiffa i«ra third-party banoficiariaa of that
omtraot. Spaciflcally, plaintiffa alJaga that in accaraditing
MffaroM. AJCS knav tha atudanta ifotild raiy w hlCB to "amura
tha aeataic atandarda of Jaffarson*"

h sotion to dianiaa both counta agaiMt AICS vaa f iiad on March
39, 1990, and it ia atili pandii^.

ERIC

206

OF 89 SCmOLS WITH HXCS DEfAULT RATES
AND HXGS DQLimS XH DSTAITLT

On ffOTtwh^r IQ, 1990, tte o. P^artamt of Education nlMMd
tto ll«t of tha B9 iMtitutioM that Mdo up 90 p«ro«nt of th9
■ts^mt loans in dofault for our soetor mnA 25 porcont of th«
total loans in dafaalt.

Tmnty-nino of thm 99 privata, poataaoondary caraar achoola and
oolXi^aa liatad toy tlia 0. S. Dapartsant of Education aa Having
hioli dafault ratm and a high voluaa of loana in daf ault ara
aecraditad toy tha Accraditing Coraiaaion of ttoa ifaticmal
Aaaociation of Trada and Tactonieal S<^oola*

Of tLho«^ 29 «^eola8

o All liava toaan viaitad toy a NATTS accxmliting taaa.

o Siictaan of Xhm aehoola ara innar-city aohoola attandad
toy low-incom and ainority atudanta. All availatola
raaaareto atoow that atudanta idio ara minority, loir-
incoaa, aij^rla haada of toooaaholda or indapm^t of
parantal incoaa hava a toighar tandancy to dafault on
ttoair atudant loana ttoan otbar atudanta.

o Ttoirtaan urm atill aecraditad. Of tlia thirtaan, ona ia
atoort-tara aecraditad for a pariod of tvo yaara
(aceraditatien ia avardwl nonuilly for f iva yaara) .

o Eight haira toaan raMvad f rem tha araraditad liat toy tha
Aceraditing Coaaiaaion. Cauaaa for rM»val (that ara
not nacaaaarily attritoutatola or liaitad to thaaa
achool a ) inc luda :

* financial inatatoility or toankruptcy

* aducational ovtcoMa (poor plaeasant, loir
graduation and ratantion rataa# ate.)

* lack of continue eoaplianca with tha standarda of
Aecraditation

207

• staff vtabiXityf lack of •quipMnt ana/or
inmdaquats facilitiM

o Tm mxm unter nvim l»y thm Acpr«ditif«9 Comission;

o Two mrm mdwc quortarly sonitorii^ hy th« Accrediting
ConiMion for mrmmm such «s financial concams^
placnont ana/or rotantion rataa, atc-i

o Ona hav baan raaovad by tba Aecradlting Craaiaaim and
ordarad by a court to bava ita accraditation rainatatad;
and,

o Tbraa ara cloaing and in tba procaaa of a "taacbout.*

AZSS

TMnty-four of tba 89 acboola liatad mm having bigb daf ault rataa
and a bic^ volwa of loana In dafauXt vara accraditad by tba
Aeeraditlng coaaiaaion of tba Aaaociation of Ii^pat^ant Collagaa
ami Scboola (tt#o of tha acboola Xistad aa AXCS-accraditad vara

mt) *

Of thmmm 2 A at^hoola;

o Tbirtaan vara cXoaad savaraX sontba or yaara bafora tba
Xiat vaa iaauad;

o EXavan ara atiXX acer^itad;

o All currantXy oparatii^ bava baan viaitad by an AXCS
Accraditation Cnaiaaion taaa*

o Pour of tba aXavan ara undar f inanciaX raviav by tba
Aooraditing CMaiaaion (ona ia in Oiaptar XX
bankmptcy) ; and

o Si^t of tba 24 bad dafauXt rataa of XMa tban 35

paroant and tve of tbMa ai^t aXao bava eXoaad. Tba
otbar aix of tbaaa aigbt ara atiXX accraditad, vbicb
aaana that aora tban baXf of tba a^iooXa on tba Xiat
atiXX accraditad bava dafauXt rataa of Xaaa tban 39
parcant. AXX but ona baa a dafauXt rata of Xaaa tban 30
par cant*

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2 ^ 1

ERIC

208

Hisranicxii overvxcw
Z.Ut^ belov •rm MVitnl of thm lJiitiativ«« KMm and AXCS hwm

imils thm AcoraditlM CewlMicoi of tlw Hatimaa AMOoiatim of
tnte and Tadmical Schools r#cogni»M that •c««dit«tl«i !• •
vrmnmimitm far aliaibility for fodoral oti^ont f iiiAi^ittl aid,
IJTJSi^iriiot to o^oxMo or adomiotor fodwol finanoUl «id-

for yours, fodterol and otato ^ovormmto md socisty at lorfo hrnvm
looted to oMrodltation to dotsrmino if m oobool mmmtm cortoin
odmotimol aooraroo sad sound school prmetlcmm. Thm ACGroditlng
Conlssion's nelusivo eonesms mrm oduestioml oxMllmoi and
Institutional Intagrity. »oss ocmcsrns havs caus^ f^'^iti^
bodiss to sonitor and act on thMO sobooXs tHat fail to cmply
vitb tlioir seersditiag standards*

StadHt OOBlaliitss Thm coMissira roquirss oa^ school to publish
in tba studsnt oatslog and/or hai^bocOc tha procmtorss to bo
foUovsd in lod9in9 a mi^^aint eonoamin9 tbo institution.

^ Stitdants havs f^t visitad tha school

facility prior to «irolls«nt vill havs tha owwrtunity to vithdrav
vithent panalty vithin tbroa days follovin^ sithsr sttandancs st a
rsgularly schodulsd orisntatim or folloving a tour of tha
fscilitiss and inspsction of squipssnt.

Sobool Visits: Tha cosnission has significantly incraasad tha
mabsr of on-sits visits to asbbar institutions. In addition to
tbs rsgolarly sehsdulsd fivs--ysar rsvisir visits, s^iools ars now
rootinaly visitad m m Changs of Ovnarship or ths aMition of a
dsgrss pro gr as . visits ars also sehsdulsd whsn progrsas ara sddsd
that ars not irithin ths orivinal mission of tbs school. Annual
Rnort vsrif ieatira visits ara sads to a statistically
significant, randomly sslsotsd nuid»sr of sotools folloving rscsipt
of tbs Annual Rsports.

of c o p doc t : Tbs Cossission draftsd and adoptsd a ssriss of

Codas of conduct for ths ssabars of ths Conission, taas »asbsrs
and Msbsrs of Ai^sals Pansls as vsll as staff. Thm codas rsflsct
tbs C^slssion*s dstsrsination to hold all parsons inwlvsd in ths
svaioation proesss aocimntabls for ths intagrity of ths process.

• 1

erIc 2 ' '

Miteatay: Tbm ConlMim Imom a Shoti Cmumm Ordar to s^iooXs
tiwt ill* banJm^tcyf requiring m datAlM «xpl«Mtien of tho
iiistltiitioi)*o pXan to alloviata tHolr f ImucUI ^t^Ims* Durii^
ti» tws of tHo Catmo tte Mhool is i^r^iibitod froa ray
eUangM in it« otatM^ o.g. i^rogma, ownorvhlp, loMtlon.

SMmitiBo VMtloMt 8G9mlo wv <Hily UM opioyoM in tbo
Mc»l^St MtivltlM vitu coil— iw mil mrollwmts

mdlestoA m thm vi^eomful co^lotlcm of « mt m miniaim, thirty
dm of training* tte CoMlMion proMtoitn ochoolo tnm
roeniitlno p roiwoc tit^ stt^mto in cnr nmmr volfaro offim,
^i^loywint iSm, food otup ewt«ro, and HomImb ahoXtoro.

juasradltatioo: Tbo CoaalMion ad^tod policy davalopad by tlia
Cotmeil on Portaroondary Accraditation (COPA) which raguiraa full
diaeleaura by an inatitotion concerning ita paat, praaant ai^
futura ralationahip vlth any othar a^aditing c^miaaion*

mauobaai Tha CoaaiMim haa raaff irvad ita atat^arda for branch
oawuaaa that anaura tha Mln achool*a raaponaibility for tha
^mdii anaura that a branch ia fully raviavad prior to
•cor«ditation; and raqulra that tha teranch'a prograaa tha
aaM aa or ralatad to tha parograaCa) offarad at tha parant achool
and haa tha aaaa nasa aa tha vain achool.

j mmfx^t K^er Qoaliflcatiocai: Ml inatructora mat hava at a ninlaua
tvo yaara of praetieal iwk ajqwrianM or aquivalant trMinii^r in
tha fiald baing tau^t and th<»a ara raaponaibla fo r_Can aral
Bduoation woraM In dagraa i^^aaa, a bacoalauraata dagraa.

.Kim^f Tha Coaaiaaioa raguiraa that achoola will rafund tuition
for tha prograa up to tha 75 pareant laval of tha prograa or
eouraa of atudy.

Tha Coniaaion haa aXao adoptad thaaa procaduraa daaignad to
aapadita tha acoraditatlon procaaa and raviaw.

Bapid P tt ^ " tmnmi A pool of gualif lad ii^ividuala ia
milabia on an ongoii^ baaia to gulcAly raviaw achoola af tar tha
Coniaaion ia aada awara of potantial violati<ma of accrmliting
atandarda. Thla aathod will anabla tha Coniaalon to datarmina
tha laval of potantial problasa aa thay daval^.

Buortlxags Auditad or raviavad f is^aiwial atataaanta ara now
raguirad* Thoaa r^porta ara raguirad aa part of tha achool*a
j^ual Raport and will giva tha Comiaaion a battar idaa that a
aehool say ba davaloping a problaa(a) which could affact atudanta*

- 2 «

c :

210

Vtafcahops: Sidiool* tliat apply fm Acorsditation and aaaX to ranav
thair aceradltatim ara itov raquirad to attand i^kali^ prior to
i^lieaticm auteinim* Tbasa vorkab^ ara daaigmd to iaprova
tlia achoola* uadarataiMling of tha aecanaditatim procaao and ita
^roe^ural raquiraaaiits and say laaaan dalaya In ttia aecraditinq
procaM. 7hm mrka^^ Iiava alao aoraanad oat aolioola tliat ara
not aarioua about applying for aoeraditation; in 19Bf , f«
axaapla, in potantial applicant a^ioola attandad aooraditatim
iforJuib^lM but only 70 actually a^liad fw aeoaditation.

llipaala Panal: Tba Appaala Paml*8 acopa of raviav of Ceaniaaion
daeiaiona haa baan focuaad on tha original racord bafora tha
Ccamiaaion, and i^atbar tha Coaaiaaion*a action vaa appropriata
baa^ on that avidanca.

MCS Acgtdltfltim

Sinea 19S8, tha hlCB Accraditii^ COMaiaaion haa inatitutad a
mtabar of critaria and policy ohangaa.

Clodk to CMdit Boor onnvaraim: tha Cmsiasim clarif iad tha
eonvaraicm froa clock to cradit hoitra to all aaabar actoola and
oautionad aohoolo on ovor-avarding.

TltlA zv Hii(b«r Hwatioo Act Prog raaa s A l.»ngthy (13 paga)
iqpdata and analyaia (includii^ Q a A) on ability^to^banafit,
raaadial prograna, and Sngliah aa a aocond languaga (ESXf)
laroviaima in tha Titla XV prograaa vaa providad to all achoola*
tha Coaaiaaim alao adoptad apacif ie guidaliMa controlling tha
of farii^ of ESL prograaa and aicplainad to Mmbar achoola tha
fadaral ragulationa ragarding thaaa typaa of prograaa*

Financial Mnriams All hXCS inatitutima undar financial raviaw
by tha Cnniaaion ara raquir^ to aaah prior a^iroval bafora
initiating any non-aain ca^ma activity*

BaoKuiting and adaiaaioBat Tha Mttiaaion narrovly prMcrib^ tha
recruiting and adsiaaiona practicM a^^l<^ad by aaahar achoola and
alimlnatad tha praetiea of eanvaaaing for adaiaaima* Baeniiting
and adaiaaiona mra strictly liait^ to aohool aq^loyaaa only and
racniitara vara prohibitad froa adainiataring adaiaaiona taata.

yaat iaaaaaaant and Oaapliaaca Taaaa (lACT) t Thaaa FACT Taaaa ara
authoriaad by tha Coniaaion to invaatigata and rap^rt on allagad
i apropa r btiainaaa and adueational practicaa by or at aaahar
inatitotiona*

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211

Dm AoeraditMlMs tte MMlHion ftdmM policy tevtl^td by
th# toaMiX m PostMccMid«ry Accreditation (OOPA) vhi^ roquim
full disolraiiro 1^ m institutim coneorning its put, proMiit and
futim rolsticnuUilp with uy otter aceraditing cammLmmim.

BdaefttloMl wifi TImi coaniovion ostablishod policy rogarding
thixd-iparty contracting for aducational aarvicaa vith non-
aecraditad antitiaa.

Satlafaetflffy '^"^ prograns MCS Msbsr Khoola ara raguirid

to afi>Xy standards of satisfactory prograas to all atudanta, not
just to ability*to^banafit studants.

M«v SBnliflaiits Visits All adioola applying for AXCS accrsditation
sust first undargo a raamirca (raadiMaa) viait bafora thay
^rocaad vith t^a salf-study ravisv.

BMnirad Dagrsat T)ia C<»aission raquiras that instructors
taadiii^ e^utar aubjacta ralat«l to buainaas adainistration and
SMTstarial scianca aust possasa a baccalauraata dagraa*

Xatltntiaoal BffsctivanMas Tha Coaaission sdoptMl critaris by
vhic^ institutions aust dmonstrata institutional affaotivanass*
including ratantion, placMant, ai^ a^loyar satiafaotion.

f^aiili otif pisMs Tha Coiaaiasion raquiraa all inatruetiona on
aeadaaic or financial shov causa to aubait a forasl taach-^t
plan. Tha oraalssion alao atipulatas that taaeh-^out plana #
ratantion iaprovaaant dirrctivaa or plaearant iaprovoant
diractivos aay ba raquaatad froa thosa achoola m f inancisl
ravisv-

Aflooastlng Znfonstions Tha c»aission raguiraa schools to subait
sll financial ^forastion baaad on tha accrual Mthod of
accounting*

Maeation ca^oMats Schoola aust imrluda a ganaral aducational
coavoMttt for at laast thxmm yaars in an aaaoeiata d^raa prograa
bafora thay can ba considsrad for Junior eellags aeeraditation.

IS Aftsr a raviaiwi in tha sppaala procaduraa, tha

Coniaaion providad that all nagativa aotiona, as daf inad by tha
council on Postsacondary Aecraditation, cmild ba a^^lad to an
outaida body coi^oaad of foraar CMaiaaionara. Tha policy on
eonfidantiality was alao broadan^ to parait diacloaura of
aeeraditing actiona to intarastad partiaa.

9ttmgthaaad CurricuiiiM: Thm ^aaiaaion raquiras all
inatitutiona to strangthan eurriculuaa raquirii^ stata
oartification for graduataa to ba licanaad to practica.

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212

BooxmAitmtLan «tetate|Mts Thm Conission Mndat^d that mil schools
Mslclng initisl acers<lit»tion or ransvin? axiatlng accraaitatio*.
■uat attand an accraditation worhahop.

Elgh Dafanlt Schoolss Tba Covaiaaion dlrsctad intarin raviava of
all high dafauXt (ovar 35 parcant) achoola.

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213

isezsxATxm suywRiTO by katts & hies

KMTO and AIM stxoi^ly »uwort«d uvm:«1 provUioM of this
l#gl«l«tion, Md Msl«t«d la draftlmF om provi»ioii:

aSL^mamvltt • cohort dafault nta ttxoMding 30
vmrcmtt wmt imlmmmnt m pro rata refund policy for all
Tltla IV aid r^ipianta. tlia policy soat provide for at
laaat aa araat a rafund aa would tlia policy dafinad in
tlia Saeratary*a Dafault Raductioii Xnitiativa*

Poiaie lav 101-239, onibu Bo^at RaccmciUation htit of was-

KXTTS and AICS aaaiatad lagialatora in drafting aavaral proviaiona
for thia Act, inoloding;

ot Aq gnditattgr- inatitutiM cannot ba
™ifiodor^ a^tifiad aa an aligibla inatitution if
tHat inatitution baa bad ita accaraditation vitbdravn,
rmwdkmd, or otlwunriaa tarminat^ in tlm pramding 24
Bontha or if it withdraw fna ita ^*
■bow cauaa or auapanaim ordar during tba ^iveaaing 2*
smtba unlaaa (a) tba inatitution 'a accraditation baa
baan raatorad by tba aaM accraditing agancy; or, (b)
tba inatitution baa dnenatratad to tba Sacratary of
EMeation ita acadnio intagrity in aocordanca witb
Saction 1201 (a) (5) (A) or (B) of tba Act.

Inatlttttlona witb dual accraditation ttat bava ji^^^ ^ ^'i^.i,
accraditation witbteawn, ravokad, or otbarwiaa tarminatad or that
vitbdraw fro» aitbar accxaditation undar abow cauaa or auapanaion
ordar during tba pracading 24 mmtba wcnild not ba aligibla for
oentisniad Tltla IV participation unlaaa conditiona (a) or (b) aa
llatad abova ara aat.

raaain aligibla to participata in any Titla IV prograaa,
otbar than tba 5SI0 and Byrd Sdkiolarabip Program, a
s^ipol tbat admita ability-to-banaf it (AITB) atudanta
mat aaka available to tbaaa atudanta a fo^graa tbat la
wovan auceaaaful in aaaiating tbaa in obtaining a
Sartifieata of bigb aobool aqnivalai^. Sctooola ara
mit raquirad to gravida in-bouaa 6ED program awat
anaura tbat au^ a prograa ia available to ati^anta.

proviaion allowa for a aix aontb dafault aanaaty prograa

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214

for cl#f«iat«4 CSL borroMTS. A tefaultw who ottMjrviM
quAllf iu vill bm «li9ilil« to pMTtieipftto furtlwr in
Titlo XV profrus if bo or mtm ropoyo in full all tho
oiitjitonding ^incipol and intoroot on tbo dofmltoa
loanfo) during this poriod. A dofoultor idm othorviM
quolifios My «loo rogain oligibility for participation
in Titlo IV prograu by wldJig 12 conMCUtiva smthly
paysanta of a dafault^^ GSL and if thair loan ia than
aold to an aligibla landar.

^n-^Qay ch^ » nftiii- An institution way not dalivar tha
first inatallmnt of an SLS loan to a bonmmr 1^0 has
not sueoMsfully eai^latad 30 days aftar tha first day
of tha progras of study in tha first yaar of tha
progrsB of uiKiargraduata aducation in i^ch tha studant
is anrollad.

NATTS also supportad fiva additional proposals in this
lagislstion:

o No SLS loans to undargraduatas anrollad at an institution
with a dafault rata of 30 parcant or highar;

o Ho studant aay borrov mora than $4^000 undsr tha SLS
prograa in any acadaaie yaar or any pariod of nina consactttiva
Months, vhichavar is longar;

o Tha proMada of a Stafford or SLS loan vast ba disbursad
in two or aora inatallaants ragardlaas of tha loan asount or tha
langth of anrollsant pariod for vhich tha loan is aada;

o sacend or subsaquant loan diaburaarants sust ba appliad to
radttca tha studant *s loan balanca aftar a landar or aacrov sgant
is notif iad by a studant or a school that a stt^lant has eaaaad
anrollsantf and

o Prof asaional judgaant ny ba uaad by aid adainiatrators in
dataraining aid awards only on a casa-by-casa basis, and aiailar
casas say not ba traatad on othar than « casa-by-caaa basis.

voataacoiidazy Msolomra Act of 1990 (B«R. ««39)

HATTS halpad to draft thia logislation, which vas introducad by
Raprasantativa Chria Parkins (D-Jnr). Thm bill would axtand tha
0.S. Oapartsant of Education's raquiraaanta for tha disclosura of
collation ratas sat by tha Saeratary*s pafsult Raduction
Xnitiativa to includa all dagraa-granting highar aducation
prograas, not aaraly thoaa prograaa irtiieh prapara studants for
vocational # trada, or carMr fialds*

Tha bill would guarantaa that studanta saaking postsaoondary
aducation would hava tha opportunity to Jcnow tha ooaplatim ratas

215

Df thm woom in viilcdi thmy vi«h to mtoH. Thm legislation
vooM AUefurtter protoet studrnts trmm mdioois that mimj^Mwit
tiMir mn^osod fndwtiM rrnxmrn,

Thm PostMeondmry Bftmtim Diselosim Act of 1990 vis
ineorporatod into Thm Sti^toit Right-To-Ki^ Act (B.R. 1454) r vhich
mm uMnisMSly pwMd by tHo houm ia Jum^ mo bill roquiroo
tho Somtory of Mimticm to dovol^ dofinitiono And
MtbodolOQlos for MMoring fradwtion ratoo lankmn down by
mro w Hold of otndy and by individual aefaool or acad«»ic
SvUion. Xt al«> roquiroo tta Socarotwry to dotaraino tho baat
MV to oalGuUto fl»loyMnt ratoo of rocant trado and taehnieal
i^aol oraduatoa in tl»air f iold of axpartiao, Tho Sacratary wuld
tooroqn^od to oubmit tliooo finding to tha CongroM by Octobar l,
1991*

•^ia iMialation will oafoauard atudanta who can ba yulnarabla
e^yaan and unprotoetod citisana on traditional eolloga
^mf^mmm » aaid HATTS Praoidant Staphaji Blair in support of tha
bill. •Disoloswa of graduation ratas acroaa tha apoetrua of
PMtsoeondary institutions wcmld anabla atudanta to datarBina
vhattar thair prospoets of cwoplatlng a givan prograa ar«
faverabla. Tha logislation would provido studonts with valuabls
omsuMr data and telp to aosura productivo usa of fadaral studant
aid dollars.* Tha bill was signed into law in Pall, 1990.

fftodaot lAan Abm Provontion (OAP) Act.

HATT9 supports* this logislation dssignod to halt abusas
fadaral studant loan prograa, sponsored by Rap.
PL) last Hay. In a news confarancs to announce tha lagialation,
HATTS Preaidant Stephen Blair said, *A faw bad apples i« the
private career college and s^iool sector hurt the efforts of the
aelority. KATTS fully eiworts the Departaent of Educatira in
closing the teors of schools involved in fraudulent activity."

this lagialation was incorporated into the student Loan
MmeilUtion Aaendaents of 1989 in P.L. 101-239 and becaae
effective S^teaber 21, 1990, Unter this new regulation, the
Secretary of Idwation is authorised to use aaergmcy aetim to
nrevent aisuse of funds by suspending federal student aid tm^
trom a school if there ia reliable inforaatiwi that the school is
violeting the law. On October 4. 1990, Secretary X*uro Cavasos
suspended federal sid funds to 14 schools under this regulation.
The schools will have an q^rtunity to ahow cause why the
eanotion ahoold be lifted.

HATTS supported the Departaent of Education's Oaf suit Reduction
Initlativeproposed in June, 1999 • Under the initiative,

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216

nguUtims oall«d for imtitotions vlth default ratM tatMwi 40
and to pttTcmt to r^Aocm thmir default rata* by 5 jMreant mmch
vMT for f 4vo ^MTsi iMtitutlona with rataa over 30 j^mremnt to
isplomt Kwatod rofund policioo; and Inatitutima vith ratoo
abovo 30 porerat to dovolop ^ault BaMgaMiit plana.

•tfioaa roouXatiima ara tMg» and will havo an advaraa affact upon
a nu^w of ooboola,* aaid »TTS Praaldant Sti^pten Blair.
•MMvor, «o aro eoafidont that tlwao rogulatlma vill balp to
aobotastially rsdi^ tba dafaulta tbat ara oausad by tba
• in tba c iir r ant j^rograa.*

no m rooulationa alao roquira tbat all iratitutiona vbi<lb of far
vocaUonal oducatlwi prograaa liat coi^latiwi rataa^ plac^nt
ratoa, and stata llconaing r«iuira»anta to all atudanta.
roaulraaant ma not sMto of baecalauraata prograsa* *pwanta who
wSroll tbair cbildron In traditional fwir-yaar dagraa prograu
abwld bava aceoaa to tba aaaa parf oraanca ramilta aicpactad of
BTOoran of Iraa than four yaara. lHaaa dagroa ^pgrm abould
bavo tba aasa emauMr diaeloaura rolaa aa j^ivata caraar collagaa
and iMboola,* aaid Blair*

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217

QUALZTY INITIATIVES

Association of Independent Colleges and Schools

in the forefront of the quality movement in

ucation. In the spring of 1988, the AICS

^ned a Quality Sya^sium, the first of its kind in

ucation. That syvqposium was folloved fey the 1989

ualitv Ass urance for Private Career Schools, an

ing industrial quality assurance to the operation

ostsscondary institutions, ^is book was

12 quality assurance «rorkshops held in various

hout the country.

ICS Accrediting Commission has been in the
measurement of educational outcomes and their
averall institutional effectiveness. Ifhile other
econdary education debated the issue, AICS
creditation criteria, effective in 1990, requiring
om able to demonstrate satisfactory student
acement rates, skills and knowledge gained as a
struction at the institution, axid satisfaction by
aduates with the education received.

siece of the quality initiative has been the

if -paced, campus-lMsed faculty development package

institutions. This package has been an attenpt to

the classroom level. It is delivered to
ar individually or through group in-service
s complemented by a series of workshops in various

the country, l^e package has bexn met with
sm, and, like all of the quality initiatives, will
fefined as AICS meets the challenges of the '908.

ERIC

218

Za 1999, KATTS pubUoliwI Cattliw fikill^i. c«<.i.im, «
9tt»tent's auid« to Mlaetlim a cuMr and tiM ri^t private cmrmmr
TChooI. sines tban, tlia toook hu JbMn m phajioMiwl siccus.

m an •aay-'to-raad fonat, grttllWr BKiliUfl. fifttfaW AftMfl proviiira
proapaetiva ati^tata vith infcsutlon on tha earaara in dasand,
and halpa ttea datanina what oaraax ia ri^t for tlm. na book
alao Imltttea a at^-lqf-atap procMa studanta can uaa in locating
and mntaeting tHa parivata oaraar aehool that will provida thm
ta^uiioai aduoation thay nMd? quaationa atudanta alunild aak vhan
avaiuating any poataacondary institution; intonation atudanta
naad to undaratand institutional raquirasanta; and hov atudanta
can obtain financial aid and tha raaponaibilitiaa involvi^l vith a
loan.

U.S. Sanator Paul SiMn haa callad Cattiiw sklll«d. getting Ahaad
"tha hMt eonmimar raawrca guida availahla.* Laat yaar, tha
O^artaant of Eduoatira ^vioualy agraad vith Sanator Siaon;
i nataad of introducing ita own eonau a ar infmaatim ho^ki tha
O^artaaat publicly andoraad flatting ffltiii«d. cttlnc Ahead and
sada tha publication availabla, frM of eharga, through tha O.s.
Conauaar Znfoxaatiim Cantar. Aa of Oetobar 1990, aora than
200,000 eopiea of oat^itKi j^iiiad. tzm^ntntf %i,mmA bava baan
diatrlbutad by tha Conauaar Znforwtion Cantar, aaking tha book
ita aoat raquaatad publication avar.

2.i;

219

Mr. Aiamsws. Thank you very much, Mr. Blair. And I thank ihe
oth^r members of the panel for their ^^$17 informative and stimu-
lating testimony. I will now go to Mr. Gunderson.

Mr. GuNDSETON. Thank you, Mr. Chairman. And thank all of
you for your patience and for your tratimnny.

I guess, Mr. Resso, your ^tement jumps out What do you sug-
gest we do? I mean, you're well aware of the reports that are
coming out, the Nunn report yraterday, the amotmt of money we
spend on U» <tefault programs, all of the discussions on the int^ri-
ty and credibility of Ickui pn^rams.

And as best as I can detect from your statement, you're suggest-
ing that, if anything, we've done too much. Is that correct?

Mr. Resso. No. First of all, I haven't had the privilege to see the
Nunn report, let alone read it However, I think the aosrediting
bodies should— their function and purpose should be for a quality
education and the Federal Government should be looking into the
Title TV programs.

Mr. OuNDBRSON. But isn't that what we're doing?

Mr. Re^. And there should not be an overlap.

Mr. Gunderson. Isn't that what we are doing, looking at the
Title IV programs?

Mr. Rssso. Yes. But also, you're looking at the default rate,
which will put a lot of schools out of busing. And there's a lot of
good «;hool8 that need to stay in business. And if they go out of
business, I'm sure they won't reopen.

And I don't think the default rate is the criteria to put these
schools out of businsK because I have several schools, eight to be
exact and I know with our inner school we have the same curricu-
lum, we have the same educational director, but our default rate is
a little bit higher than our suburl»n s(^ool.

Mr. Gunderson. Can you give me your default rates?

Mr. Resso. Pardon?

Mr. Gunderson. Can you give me your default rates?

Mr. Resso. In our inner city, it's about 33 percent; in our subur-
ban school is 5 to 9 percent 80 it is a difference with the social
economic backgrounds.

Mr. Gunderson. I don't disagree with that, and I'd be the first to
tell you that the quickest solution to the default rate is to declare
high risk students ineli^pble. I mean, no question about that

That doesn't mean we don't have a problem. We simply can not
take a reauthorization bill to the floor that doesn't do something in
addition to what's alrrady been done to deal with the issue of de-
fiaults because if we don't do it intelligently, and I'll be blunt with
you, our coll««ues in the House floor will do it emotionally.

And we need more jpedfics as to what exactly we can do intelli-
gently to solve the pn^lem that doesn't destroy the abilitv to serve
the mgh risk student I agree with you. But we need that help from
you.

Mr. Resso. I think you have to, first of all, before you come out
with making a blanket 35 percent default rate, I think you have
to come out with the mitigatmg circumstances. What is that ^ing
to be? Because, you know, some of the schools are going to nave
difficulty.

» 2.:r,

ERIC

220

Mr. GuNOEBSON. Put yourself in our problem. The cost of tuition
and higher education across the board continues to go up above
and beyond the rate of inflation* The <xwt of the Federal Govern-
ment programs in Title IV has, I believe, more than doubled
during the last 10 years. And, yet, we hear people come before this
committee telling us that we are inadeqimtely serving the constitu-
ency out there, with some merit.

Now, we've got to make some tough policy decisions there as to
who are we going to serve and how. I mean, other than health
care, higher education is the only area where the government is ex-
pected to be the third party payee, but it has ab^utely no ability
to omtrol the cost of the program. And you're sugg^ting we ought
to have no abiUty to control who has access to that pn^ram. In
1991, we don't have that luxury.

Mr Rbsso. I realize we must have control. I could probably pro-
vide you with a written statement, and I could certainly submit it
to the committee,

Mr. GuNDERWN. Would you support Mr. Petri's proposal of
income bafi^ repavments? b that your idea of a solution?

Mr. Rewo. No, that^s not my idea of a solution. No.

Mr. GuNDEBSON. Who do you see as the problem? Is the problem
the student who drops out shortly after they've received the loan,
or is the problem tne student who is unwle to pay back after
they've received a d^pree?

Mr* Rs^. I think it's not the school problem. If they're doing a
thorough job with a sood curriculum, tlieir placement rate is ex-
tremely high, I believe sometimes it's the lender or the servicers
not dunning thei^ people for rerayment. The school is doing so
many things to try to keep reminding ^ese students to pay back, if
they do have a student Ioan» to pay it back,

Mr. GuNDERSON. So you believe the school has no responsibility
ataU?

Mr. Resso. No* I think weVe proven that through our national
araociation that we certainly have finandal aid workshops, we've
had loan counsel task force. We got together with a default man-
a^ment plan that we submitted, and I'll be veiy happy to share it
with you. We're doing all we can, praaibly.

Yes, the school i^uld never let up. No, the school shouldn't go
scot free. The school should still try to work extremely hard in not
only educating Uie students and getting them placed and becoming
taxpayers, but also do all they can for these students to jmy tmck S
they owe money.

Mr. GuNOKBSON. Let me go on to some of the others here. I
happen to agree with 3rou^ Mr. Blair, that probably one of the big-
gest problems with the administration pn^x)sal is the ineHgibilitv
tor short-term courses. Th^ come at it from, prol^ly, a little dif
fermt perspective than you, but it might be similar as well, that
more and more, higher education is ai^ed to do the training and
retraining of America's work force. And that doron't always in-
clude everybody enrolled in a 4 v^ar ftill-time education program.

Do we need different standards for Uie nontraditional student?

Mr, Blair. Yes, sir. The distinctions, I believe, are inappropriate
on tightened control of institutions, but very appropriate on the
population served. The population served by historically black col*

221

leges and universities and inner city community coll^ or private
career college or schools, have exactly the same problems of serv-
ing a population, making sure that they have appropriate counsel-
ing, that they have rigorous testing diagnostic systems, that th^
have the support services that are going to ensure to the great^
po^ble degree that that student who is admitted ran succeed in
that education and does succeed and get a job in the field for which

they're trained. ^ ....... • *

We have a large number of our institutions that are private
career colleges and schools that offer baccalaureate degrees and as-
sociate degrees. Many of those have very, very low default rates, m
the 3 and 4 and 5 percent They are no diffferent than a 4 year uni-
vemty or college that has a 3 or 4 percent default rate with a pop-
ulation that's served in that similar category. , „ .

We need to make distinctions, and our propwals actually do
make those distinctions. The oversight needs to be mtensmed on
those schools that are in high risk areas. Our commission has re-
quired that those schools that serve high risk have the appropriate
support services, have the diagnostic systems. . ^ ^, .

We began over 2% years ago m a jomt project with the Amen-
can Council on Education that all tests to be used for abihty to
benefit students would have to be approved by the American Coun-
cil on Education, as well as the procedures outiines as to how those
tests were to be handled and rendered.

We absolutely beUeve that there are appropriate distinctiora, but
not by type and control of school, but by vie population served. Our
concern is that we think we have answers. ^ -

In reference to your question to Mr. Resso. we bebeve ttiat it is
appropriate and rigorous oversight, that it is that the triad works,
that tihe Department of Education does the program reviews and
the audits, it determines the eligibility. «tv * ^ j««o

Mr. GuNDBBSON. Let me interrupt you there. What good does
oversight do without some kind of enforcement mechanism.''

Mr. Blaib. We believe that the enforcement mechanisms can be
there The thing tiiat we advocate most of aU are outcome ass^
ments. We beUeve that aU of education should be brought under
the purview of measuring its effectiveness. Of those who start, how
many finish? Of those v^o finish, how many get jobs m the field
for which they're trained? And if licensure or certification is m-
volved, what is the pass rate? . w.^ • -

What we believe that that is appropriate for somebody gomg into
cosmetology as welding as in law and in medicine. We think that
the consumer should hav© the information to know how effective is
that Institution in serving its population. .i. ^ *u * ■ r

And we believe that a critical role is making sure that that mfor-
mation is provided and is accurate.

Mr. GuNDiRSON. Anybody else? Any strong feelings on the non-
traditional? . , ,

Mr. Knutoon. I'd be happy to. Mr. Gunderson, would you re-
phrase the last part of your last questions so I can be most focused

"*lSK ^SSSoN. I'm not sure I can rephrase it. but I can repeat
it Do we need different eligibility standards and different regula-

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227

IT-M o-n-

222

tions in the deUvering of financial aid for nontraditional students
than for the uvular full-time traditional student?

Mr. Knittton. I tiiink Mr. Blair answered the questwn well in
terms of distinguishing the kind of student that would attend an
urban area ommumity coll^ or some of the urban area privately
owned proprietarv schools, as well as students who attend our his-
toric hUxk schools or tribcdly controlled schools. That tends to be
one economic spectrum.

So ^u know the background. I don't believe you were here when
I ti^tified as I was first. I'm involved in the art institutes, which is
a group of schools with 13,000 students in eight m^r cities
throughout the United States. Our student population is essentially
middle America; we have low income students and hu;h income
students, but if you look at the median range, we're in the middle.

And that factor, plus the fact that for a number of years we've
had a hif^y disnplmed financial aid management process, budget-
ing and whole lot of internal discipline associated with that timt
involved the parent and the students and part-time jobs and
planned payments and loan a>unseling and so on, that the combi-
nation of those factors has cau^ the cohort default rates of stu-
dents who attend the art institutes, some 13,000 who do, to be
lower than those of community (»llef^ or lower than the national
averages.

But, very interesting, if you compare, for example, students at
the Art Institute of Pittsbureh, where there are 2,500 students with
those at the Art Institute of Houston, where there are about 1,000
students, you see that the loan default rate of students in Houston
is much higher than those in Pittsburgh. Now, that's the same dis-
cipline, financial aid proce^, relatiwiy same curriculum--there
are some differences but it's the same core.

In other words, here you have a microcosm of two different loca-
tions, and you see a di^erence in the default rates ranging from 9
percent at the Pittsburgh school to 19 percent in the other. And
when you get behind those numbers, you find a couple of things.

One, there is a difference, in general, in tiie economic level of
students in one opposed to the other. In the Pittsbui^gh school,
$25,000 to $30,000 mcome for dependent students, whereas that
number would be closer to $20,000 in the case of the Houston
school.

Also, in the State of Pennsylvania, there is an excellent student
l^rant program which does not exist in Texas. In otiier words, that
IS a supplemental aid to students. So the economic circumstan(^
do bear a direct relationship.

The other main thing that I wanted to say, and I tried to stress
this during my testimony, is that we do have to have— the FWeral
Government must set through tiie Higher Education Act and
through the actions of the Department of Education, clear stand-
ards for State liceiunng and clear standards for the re<x^ition of
the rwional and national accrediting bodies.

Ana that the Federal Crovemment has the right to do and should
do be(»use we are, in fact, talking about the relationship between
students and the Federal Government and all the players who are
part of that process. We have the right to do that.

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223

And, ftirtter, the Department of Education, and I said this
during my testimony, reaUy must inspect if it's going to J^pect.
And&ere is, has been, lots of power m the hands of tiM Depart-
ment of Ekiucation which has not been exercised and mn be, must
be.

Mr. GuNDEBSON. I understand that But inspection without en-
forcement does no good.

Mr. Knutbon. But isn't that the same, sir? . - v i.

Mr. GuNDKBSON. You've got to have some standard by wmch the
ctepartment can go and mai^ iaspectioTa, nmke judgments, and
force the deliverer of those programs to adhere.

Bir. Knutson. But those— may I take just shght issue that ihoee
standards are in place. They can be further developed; for example,
that the department needs to make targeted, on-sight, and tl^ is a
difference compu^ to what easts today, targeted, on-«^t re-
news of those schools which hit certain indicators such as default
rates, withdrawal rates, big growth in Title IV usage and so on.

And you and I a>uld do that if we were in the department. That s
what they should be doing. , , .

Mr. GuNDEBSON. I have no dispute. I ve more than used my nme.

Mr. iSnEEWS. "Hiank you very much, Mr. Gunderson. Mr. Blair,
in your statement, in one of the appendices you are qucrted as
having made a statement recently that a few bad apples m the pri-
vate career a>ll^ and school rector hurt the efforts of the m^jon-
ty.

On the assumption that everyone on the panel would concur
with that statement— I think there would disagreement over how
laige or small the nuuority is— but on that assurontion, one of the
things that Chairman Ford has said throughout these heannp is
that many of the decisions in the educational field recently have
been budget driven, rather tiian policy driven; that is to say, that
in the name of deficit reduction and spending outlay reductiMi, cer-
tain rules and standards have been established, perhaps without
to the veracity of those standards as a matter of educational

"Hie question I have for each member of the i»nel is: On 1^ asp
sumption that you agree-teU me if you don't agree--on the as-
sumption that you agree that there are good apples and ImA apples
in this field, what kmds of objective criteria or what kmds of facts
distinguish between a good apple and a bad apple?

If^is committee is going to try to go about the busmess at iden-
tifying the problem adiooto or '^the problem", as Mr Gundeiwm
said a few minutes ago, what should we look for? Is it default
rates? Is it job placement rates? What are the indicia of bad per-
formance here? . . , I. ij
Ms. iBfHOLZ. If I may, I might be the one on the panel who would
disagree Uiat it's just a few bad apples. That the problem, in my
experience and based on the documentation and statistus, indicates
to me that it's a far greater problem than just a few bad apples.

But as far as indicia go, I think that there are some objective cri-
teria that could be looked at. I don't tlunk d^ult rates alone are
sufficient, but job completion and placement rat» are, for schools
whose mission is to find jobs and to train people for jobs, those are

22:1

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224

fair things to look at and c^jective standanis could be established
on that.

In addition, I think that Congress c(»ild look at what percentage
of the institution's revenues conw from Federal or goiremmental
aid. Proprietary schools and community coll^ces serve basically tlie
same d^ulvantaged population, yet proprietazy students get, 80
percent <^ those students get Federal aid, according to one recent
report, and 20 percent of community college students get that aid.

I think that it's significant. We've heard sdMX>l owners stand up
in court to aigue that they should keep their Federal Amding going
in litigation that we've engaged in. TTiey've said, "Ninety-nine per-
cent of our revenues are from F«leral monies and you've got to
keep it flowing."

So I think that that's another significant factor that can be
looked at

Mr. Andrews. And I realiw you expounded on thrae in your tes-
timony as well, which I appreciate. Anyone else have any sugges-
tions?

Mr. Blaib. Yes.

Mr. Andrews. Mr. Blair.

Mr. Blmr. You've really set it up in two diiferent ways. There's
the quration of how do you tell a good school from a bad school,
and in some ways, many people seek a Michelin guide to schools. Is
it a four star or a five star or is it a three star or is it a palace.

Mr. Andrews. A very tiring pro<%».

Mr. Blair. Yes. No, never mmd. I'm going to move quickly along
to the other side of it. The dilemma is that it is virtually impossible
to come up with a measurement tiiat sets it out in front; luiwever,
it is very appropriate to put in oversight systems that monitor in-
stitutions because you can have an institution doing an extremely
creditable yib with a very high dropout rate.

Tim dropout rate does not mean that it is a poor quality school.
It may re(|uire or have a ri^r that is necessaiy in demana of busi-
ness and mdustry. Many times that rigor weeds people out that
can not be predicted.

One example is stenography, court stenc^graphers. Hiere is no
way to test at the beginning of that program how proficient that
individual will become. But it is an mdicator. It's an indicator as
you lo<^ at the population sexyed. Is it high socio-economic back-

Kaaad? Is it midkile income? Is it poor? Is it single heads of hou^
Id?

To look, also, at the effectiveness of the placement. Are they
being put into jobs for which they are trained? And what is the cer-
tification and pass rate?

In addition, the financial stability of the institution. All of those
are indicators that can be brought to bear, as weU as consumer in-
formation coming from a variety oS sources.

So while we can not, I think, suggest that we are goii^ to have a
fivstem that is error free, I thinR we must promise a couple of
things—that we develop a system that determines it to be quality
when th^ first come in, Uiat closely monitors the participants and
moves quickly when something goes wrong.

Mr. Andrews. Anyone else care to respond? Mr. Brenner.

ERIC

225

Mr. Bbenneb. Speaking for myself, initially I would disagree
with the panelist that states that community colleges basically
serve the needs of students whidi basically does not rii^ true.

If, in fact, th^ did serve the needs of all students, technically,
there would be no need for institutions such as ours. And I do
know as a fact that my school, which comprises ai^roximately 700
stwtents, fulfills a ne^ that is not met anywhere else in the State
(tf Ohio.

The Department of Education currently has pn^ram mdicators.
They've been in place for a loi^ time. The Uiad that's been re-
ferred to on countless testimonies here and before n^ to be
placed in effect; it n^ds to work.

Ymi mention overswht You've mentioned that everything has
been budget driven, ynien the expose hit the fan a couple of years
ago, ironically, it was the same time that the Department of Educa-
tion suffered serare cutlmcbt. We lost regional offices, vre experi-
enced consolidation. The only schools gettiiw pn^ram reviews were
in the home towns of where the r^onal offices were.

I've been in tiie aid pn^ram since 1973, and I've had one pro-
gram review, which was approxunately 9 ymrs ago. You have the
program indicators in the Department of Education. Schools are re-
quired to do 2 year audits, but yet the GAO found a schools that
hadn't submitted an audit for the past 8 years but yet was still in

That kind of stuff is easily caught. The triggers that the depart-
ment uses to assess points to tr^er a pw^ram review are all in
place. They can monitor Pell grant usage. They can monitor fluxes
m Perkins or Stafford default rates. , * ,

What needs to be done is the plan needs to be implemented. And
so far to date, it has not been implemented. I believe the Congress
has a study coming from the De|»rtment of Education at the end
of May d^ing wife pn^ram quality, which I think was performed
by Westat.

Having served in a capacity at the beginning of that project, I
think you would probably welcome the results of that study.
Mr. Andrews. Mr. Knutson.

Mr. Knutson. I'd like to make a couple of observations. I would
be the last to deny that there haven't been really serious prob^ms,
and that you have experienced personally in the New York State
area. I did want to comment on the one point of you make refer-
ence to schools whose mission is to prepare people for work, in so
many ^rords.

It might be of interrat to the chair that we conducted in my orga-
nization a study of the promotional literature of 500 a>ll^(es and
universities out of the 3,000 odd, and those were selected, you
know, at random from all over the country to see what they were
saying about jobs, about career training and so on. „ ^ ,

And to our great surprise, and without going into all the details
of the study and the statistical results, 89 percent, in effect, said
that through courses that they were offering or through statements
made in their catal(«8 or in their videos that career outcomra^ were
important. And even the liberal arts schools made reference to the
fact that liberal arts programs will prepare you for any manner of

ERIC ^JA

226

career. And we'd be happy to share that study with you if you'd
care to see it

But the point is as that's happening, also there are a number of
privately owned schools, and I can speak personally on this as to
the art institutes, that have more and more of their curricula in
general education offerings.

And where w© see with almost half of our students are transfers
m from other educational institutions. They've had a year or 2 of
college, some more than 4 years of college, that there's a great deal
of movement, you know, within the higher education system. It's
much different than it was 10 or 20 years ago.

But we need to focus our relation on the higher education com-
munity broadly. And I do feel that with the right standards and

f [ate keeping and enforcement, that it can apply across the board,
t will work.

One other observation, if I may make, that when we— and this
may be obvious, but I think the point needs to be made—that there
is a substantial difference m the funding of a community college as
opposed to, let's say, a privately owned school, given the fact the
State is providing physical facilities and equipment and supporting
operating costs, whereas that is not the case with a privately
owned school.

The fact that the default rates of— we've seen studies along these
lines and these have been referred to by others— default rates of
uitan area community collies and of urban area proprietary
schools and historically black colleges and universities are very
close, a matter of three or four percentage points aiMirt from one
uiother, which does suggest that it's an economic consideration
that we re dealing with.

And we can't lose sight of that fact. And it's remarkable, if I may
say one more word, when you consider that fact that the tuition
rat^ at privatelv owned proprietary schools will, of necessity, be
higher be<»use the State funding does not exist in those schools as
it does with others.

And there have been studies, very credible studies, that have
been done that have shovm that the net cost to the tamayer, in
fact, IS substantially less for students attending privately owned
«:hools than it is at our fine community collie system or with our
State schools.

TTiat is not to deny that there aren't serious problems that need
to be addressed through the proper operation of the triad. And we
fully support that. Thank you.

Mr, ANDSEvra. Picking up on that point, I would iust close with
one question for Mr. Blair with respect to distinguishing between
Rowapples and bad apples, to use your term.

What would your reaction be to the concept of peer grouping or
peer analysis that would work this way? There would be a compari-
son of schools that deal with similar socio-economic groui» of^ stu-
dents and have sunilar missions, and the test of whether one falls
mto the good or bad category would be function of standard devi-
ation from the norm.

For example, if schoob that provide entry level skills for stu-
dents m low socio-economic entity areas typically have default
rates of 23 percent, if a school falls anywhere below 27 percent or

ERIC

23:

227

28 percent, whatever the standard deviation -miuld be, they're
okay. But if they're at 42 percent, they're not okay.

In other words, is that a way of taking into account the difTiculty
factor? Are there enough schools where that kind of analysis could
be d<me fiairly? And what is your opinion of it?

Mr. BuuR. I think it's an excellent approach. As a matter of fact,
our accrediting comndasion is looking at that very i»ue.

The other thing they're taking into consideration is prc^ram
length. Those who can sua^asfulTy complete a 6(M) hour program
may be substantially different than a 2 or a 4 ymr program.

But those kinds of analysis, looking at standard deviations, are
very much under consideration. The distinction is, however, that
we're looking at the outcome measurements that are appropriate
to the educational institution— rompletion, plac»ment, certification.
Default rates are too much a function of outside agents that the
institution has little or no control abou.. It is an indicator.

But looking at the effectiveness of the institution, we believe, is a
very viable process to look at, and we are already undertaking that
investigation.

Mr. Andrews. Very well. We have two additional statements
which, without objection, we will add to the record.

One is from David A. Young, who is Administrator of Academic
D^rees and Pn^ram Review for the Office of Educational Policy
and Planning for the State of (^^n. And the other is from our
colleague. Mr. Payne, from the great State of New Jersey.

I also want to thank the jwnelists on behalf of Chairman Ford.
Chairman Ford is attending to some very crucial business this
morning that pertains to the whole Committee on Education and
Labor. And he asked us to pass along to you his regrets for not
being here personally, but he is obviously aware of your testimony
and was called away on very, very important business.

We thank you very much for your participation, and we stand
adjourned.

[Whereupon, at 1:15 p.m., the committee was acUoumed, subject
to the call of the chair.]
[Additional material submitted for the record follows.]

Statsmknt Of Hon. Donald M. Paynk. a Bspssskntative in Conobbss fbom the

Statb or New Jersev

Mr. Chairman, let me commend you for calling this hearing on the program integ-
rity of the financial aid programs.

Recently the Guaranteed Student Loan Prt^ram has been the source of concern
and criticism. While the program continued to gro^ at a rapid rat« over the ftast 10
years, so has the loan default rate. .

Therefore, instead of using the money in the program to assist students m obtam-
ing a quality pOBtaecondary education, more than half of the money is being used to
pay for defaulted li^ns.

Additionally, charges of fraud and abuse continue to surface. Although most pro-
prietary schools are doing a good job educating students, many of them have been
caught defrauding and abusing the Guaranteed Student Loan Program and that is
clearly not acceptable.

ERIC

228

I hxype that during this reautlumzation, we can find same ways to decrease the
w^te, fraud and abuse and build upon the good points of the Guaranteed Student
Loan Program.

Mr, Chairman, I would like to welomie eeveral of my good friends and c(rilc»guee.
Jirrt, I TOuW like to weionne my New Jersey colleague. Marge Roukema, and my
fnend from California, Maxine Waters, FtnaUy, I would like to onnmend my col^
leagiie, Bart Gordon, for going undercover to expose fraud and waste in t)» system,

I look forward to hearing ywir testimony as well as the testimony of all the wit-
nema

2.J i

ERJC

22S

BARBARA ROBi RTS ds^SJSLoo^

2Sf

v'M v>* M;: AT It iNAi f OW; * A N P A N N t N v

May 18. 1991 r , W7ress LcUer

Thomas R Wolanin
Staff Director

SutKommlttw on Postsecondaiy Education
Committee on Education and Labor
U.S. House of Representatives
2461 Raybum House Office Building
Washington, D.C. 20515

Dear Mr. Wolanin:

At Ions last, we can foresee an end to the obvious cause of the student lom»
fiasco- blind federal reliance on self-interested private associations, which
have been perfunctorily "recognized" to carry out duties of gowmment.

This has been a tragic mlsconcepUon of official responsibility. Not only has
it wasted billions of dollars, it has lured thousands of students to educaUonal
failure and a diminished sense of their own potential.

There must be ample case law showing it to be generally illegal for any unit
of tfovemment to grant or deny rt^ts or impose duties bas«i on the acUon
or taction of a private, nongovernmental body. If not, common sense tells
us that accreditoTB are not regulators, do not wish to be '^S^tore- and In
fact consUtute alliances to frustrate consumer-protecUon regulaUon tf they
find it inconvenient. Yet neither law nor common sense has prcvaUed.

Currently, the Education Department virtually sponsors accreditors throufl^
a "review" that is superficial and steeply slanted to favor approi«l. we could
report on the direct experiences that have left us with no confidence In the
department, including one in which the ED staff recommended approvea of
an ^accreditor it knew we were invesugating in a matter of diploma fraud.

But evenlf ED could recognize accreditors competently, the use of a non-
tfovemmental intermediary makes it Impossible for government to act fairly
to i«laUon to an Individual school, if an accreditor does not inltJally qualify.
IS ^renewed, or is dropped, any good schools in its ranks 'f "Ot^^^
aid. That fact plausibly excuses the uncritical recognition of all accreditors.

2:r.

280

Himnas R Wolanin
May 18. 1991
Page 2

Among several expenmces of talking into a dead micn^hone at ED, was the
deparbnent nsKtUm to our request for help in dealing with interstate fraud.
I Bsked what could be done atiout a sdrnd that was breaking C^cgon laws but
was In good landing with its own ^te* a state that wmdd nc^ or could not
discipline a schooi for actMtkes awajr from home. £D*8 answer revealed how
little the departmmt understands how schools actually operate: prevent the
Oregon campus from qualifying for aid.

We explained: there is no Oregon campus. The culprit operates on the fly,
with jxart-tlme "adjunct faculty," like a moveable crap game* offering illegal
academic Junk and making unmonitored promises to students. If we locate
one ai^unct prof^^sor and issue a cease*and -desist order, three will take his
I^acc whom we do not identify until U is too late. One regionally accredited
school 8 president, with a "catch us if you can" attitude^ tcrfd me he was onfy
breaking our laws a little bit.

The mi»t sympathetic Inteq^etatlon of this sitiaatlon would be that the
Educatlwi Department has never understood accreditation, does not grasp
its underlying purposi^. let alone kmrar its actual results. The department
has seaned to believe that self*studi(» and "peer" Inspection can substitute
for legally enforceable standards. It has seemed to believe, with a puzzling
credtilitv* that private association members would act concertedfy against
their inferior and fraudulent fellow members, never fearing retaliation.

We have found (1) that accreditors recognized by the secretary need serve
no purpose actually related to educational quality and student protection;
(2) that government is thus forcing sdiools to seek and pay fen* accreditation
sdeUf to qimlfyM financial aUL undor patentfy inequitaDle conditions of
variance In the gualifylng standards, time, effort, and CMt; (3) that some of
the unaccredited schools are better educators than many accredited schools,
and their students better loan risks; and (4) that the government is leadix^
student borroweiB to believe that a federal loan guarantee means a guarantee
of quality for an eligible school, a decepUon that often eventuates in resentful
unwlUingness to repay the loans.

Meanwhile, like rabbits guarding lettuce, the accreditors do exactfy what we
would expect. They obtain as much federal money as they can get for their
dues-p^flng members, taking millions back for a self-perpetuation lobby. In
a fog of bewilderment because Bnandally interested parttes have not Judged
themselves severely. ED promises to figure out why the accreditors failed!

The sohiUon is simple if not easy. Certification of schools to participate in
public financial assistance programs Is a public responsibility. It ^uld be
done by agencies of government And slm» eduratlon Is mainty a state
responsibility, it should be done by states.

231

Hxcuuaa R Wcdanln
May 18, 1991

As you know, the National Association of State Aiq^mving Agmctes pc^ts out
that its membcTB constitute an existing and proven systotn that monitors aid
to veterans by delegattai of autlmlty to the states. We an^ not an aiqianoving
a^ncy, but that is exacts tl^ nnxlel we recmnmend, ami may be a vebide.
It comprises agenctes already c]q)e ric nced in imjgram audit as well as fiscal
audit* with federally reimlmrBed enftncement of n ation al mi ni m u m standards
by the states under contr^rt and simultanems administration d state laws.

Whatever win be the exact structure of a reformed financial aid certification*
it needs the following elements.

1. Cimgress should e3q>hcitly recognize that each state if fiiee. indeed
expected, to contrcri every school that oi«rat» within its borders* If we arc
to be thorough, this would include cc»Tespond«ic« schocds. Any perceived
interstate commerce prc^lems would be rmiovcd 1^ such a mandate*

2. Congress should cxplteitly delegate to the states the responslblll^
to determine* using national minimum standards, which schools are eligible
for student aid so lor^ as thf^ meet home-state standards and obey the laws
of all states in wtiich they operate. Procedural guidelines, if any. should call
for use of external t^ijective standards and must not bog the states down in
proc^aing the inefficient self-congratulation studies and mutual-admiration
reviews that characterize private accreditation.

3* No school atroukl be eligible to rcc^ federal financial aid for any
erf its students while it is violating the educational laws of any state in which
it operates, regardless of how it stands In the home state.

4. No school that meets the national minimum standards and obeys
state laws should be roidcred ineligible for financial aid merely because it is
not accredited by a private nongovernmental lx)dy.

Your leadersliip now in reaping the Higher Education Act can take us far
beyond tlnlcerlng with a hopelessly Qawed system. It can make the student
assistance programs a prudent investment In our national future.

Sincerely.

Davtd/rVoung W
AdmmJ^trator

AgraRnic Degrees and Program Review

tMe: (f it seems appropriate, please enter this letter irUo the recmi of the
subcommtttee's proceedings.

2,T7

HEARING ON THE INTEGRITY OF THE FEDERAL
STUDENT FINANCIAL ASSISTANCE PROGRAMS

WEDNESDAY, MAY 29, 1991

House of ItePBSffiNTAnvKS,
sub(x>mmntee on postsbcondaby education,

Committee on Education and Lak>r,

Washington, DC.

The subcommittee met, pursuant to call, at 9:30 a.m.. Room 2176,
Rayburn House Office Building, Hon. William D. Ford [Chairman]

pr«ddii^. _ , _

Members present: Representatives Ford, Kildee. Sawyer, Payne,
Unsoeld, Andrews, Reed, Roemer, Coleman, Gunderson, Henry,
Molinari, and Barrett.

Staff present: Thomas Wolanin, staff director. Jack Jennings,
education counsel; Maureen Long, legislative assodate/clerk; Ihane
Starke, le^alative associate; Eliza Evans, staff assistant; Rose DiN-
apoli, minority professional staff member, Beth Buehlmann, nunor-
ity education coordinator, and Jo-Marie St. Martin, minority educa-
tion counsel.

Chairman Fokd. I am pleased to convene the Subcommittee on
Poetsecondary Education for this 13th hearing in a series of 44
hearings scheduled on reauthorization of the Higher Eduction
Act Today is our second hearing in a series of three which address
one of the most crucial issues we face during the reauthorization:
the integrity of the Federal student financial assistance programs.

It is critical that we restore public confidence in the Federal stu-
dent aid programs. Indeed, restoring confidence in the prcwrams is
an absolute precondition for accomplishing any other goais of the
subcommittee for this reauthorization; goals which include renew-
ing the a)mmitment to grant assistance and extending Federal aid
to students from middle income and working familie^ _ , „

I am particularly pleased to have as witnesses today, Ted Sand-
ers, the Undersecretary for the Department of Education; James
Thomas, Jr., the inspector general of the Department of Education;
and Lawrence Thompson, the Assistant Comptroller General for
Human Resource Proiframs at GAO. , j-

The inspector general and GAO have done a number of studies
on the Federal student aid programs in recent years and have
made many important recommendations in an effort to improve
the integrity of the programs. The legislative recommendations
from the administration also include many suggestions for promot-
ing program accountability.

(233)

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ERIC

234

I look forward to hearing the comments of our witn^^. I am
hopeful that these hearings wUl bring forth sugg^ions for
strengthening public confidence in our student financial assistance
pn^^rams.

Mr. Coleman?

Mr. Coleman. Thank you, Mr. Chairman. I join you in the hope
that these h^urings will bring forward some concrete suggestions as
to how we might make these student aid programs more responsi-
ble and accountable. I think that you and I and others in this Con-
gress have dealt in the past with the needs for reforms in budget
reconciliation acts, and I believe we have pa^ed some significant
reforms in that r^anl.

As you knowt wme of th(^ reforms include requiring a 30-day
waiting period before disbursement of loan funds, and making in-
stitutions with default rates of higher than 35 percent inel^ble for
Guaranteed Student Loan prc^rams.

I believe the department itself now— and I'm happy to see that
Mike Farrell is here, who has been recently appointed by the Sec-
retary to reoiiganize this part of the department. The student fi-
nancial assistant pn^rams under his responsibility, I think, need
to be tightened up, reviewed, and examined to see if, in fact, thero
funds are going to their proper and Intimate beneficiaries, and
that this program is getting tock on track.

I think the public perception has been that Uiese pn^ams have
had some very difficidt times, that there are some people who are
misusing the pn^p-ams, and some people are not providing quality
education to the recipients, ^d as a result, defaults and costs of
these pn^^rams continue to incr^se.

In the past, perhaps, the dep^ment has not been as vigorous as
it should have been in overviewing and auditing institutions to see
how this money was being used. So I think there is a new aware-
ness and feeling at the department that things need to get better.

I also look forward to hearing today's testimony by Ted Sanders,
Mike Farrell, Lawrence Thompson, and James 'Diomas, of the de-
partment. They can tell us what they are doing and to answer our
questions.

I think one of the important goals of this reauthorization is to
restore public confidence in these pn^rams; programs that have
gone on for many years without reo^ition that there has been
any lack of publnr confidence. And I think tiiat in the last 5 or 6
years, we've had to deal with that.

We've dealt with it, I think, significantly, but I think we must
continue to do so. And I look forward to the recommendations and
suggestions by the department, especially those dealing with the
accrediting agenda State licensii^T entities, and the role the de-
partment, itself, wiU play in restoring public wnfidence.

Thank you, Mr, Chairman,

\The prepared statement of Hon. E. Thomas ColemM follows:]

C.lJ

285

C^paing Statcsmit
By the Honorable E. TlMniias Cokman
At the Prognun Integrity Hrari^g on
Reauthorization of die HBA
May 29, 1991

Mr, Chairman, I join you in welcoming the witnesses who will be testifying
this morning on tte issi« of the integrity of <w sm<^ finarcial aid
pipgrams, particularly the guaranteed stud^ loan program.

Last week, the Senate Governmental Affairs Subcommittee m Inv^^tions
released their long awaited report on the Guaranteed Stmimt Lwn Program,
The report makes 27 reconuncmlatiOTS aimed at restoring integrity to the
program. It is my view that the Committee weds to carefully review this
report and consider including many of the Subcommittee's recommendations into
the reauthorization bill.

The integrity of cmr Icmn prc^rams is of critical concern in this
reauthorization because of tl« increased reliance on loans for funding
education and because of the many recent reports of high default rates, fraud
and abuse of tte system- The annual origination level of &afTord Lotus has
increased 71 % since 1983 to approximately $12 biUion today. Two-thirds of
the average sludent^s financial aid package now consists of loans. This has
provkled access to postsecondary education to more students than ever before.
Four million students now take advantage of this opportunity to attend more
than 8,000 institutions participating in the program.

But equally important with improving access is the nc«i to ensure students
are enrolling in quality programs. If the federal government is going to
enable students to borrow money to go to school, it has an obligation to
ensure the educational programs ihcy are purchasing will prepare them to enter

286

•2^

today's woricfbrce with the ffilvanced ^ts oeeded for an increasingly
technologkaly glotel ecotumiy.

Tlie pingrBTOs asm be able to rmin ^i^ients and provkle them with
trainoig which will oable them to c^}tain}(d» and repay their loans. Today,
the 1^ de&uh rate for die GSL program » over 10% or ai^roximatdy $2.7
billion. These are unaa:q)tably hi^ levels.

We also need to entire that fiscteral fUnds are being used for the
legitimate pufpo^ for which ttey were intended rather than for pei^nal
profits. Fuiulam^iital reforms an^ needed in this rrauthorization to re^
jniblic confkience in tbai^ prpgranui.

Congress ai^ the DqmtnmU of Education have already begun to address
these issues and has recemly en»^ a mimber of reforms directed towaids
reducing the default pr(4>lem, some of the mo^ tnq>ortant of the^ are: the
required rqx)rting of giaduation and placen^t rates for all postseccmdary
institutions; establishn^ of a 30^y waitii^ period before disbursement of
loan ctecks in a student's first year; and making tnstituliims with dcfiiult
tates greater than 35% over a two-y^ period ineligible for guaranteed
student loan AukIs.

It has been suggested that the Dq>artment of Education, guarantee agencies
and otter ai^rq>riate entitle are not performing an adequate number of audits
and program reviews. I am very pleased at the Dq>artment*s recent
annoumment of the reorpniz ation of tte Student F ma]^i5~A^i^tence
FlFo^ams and the ^^intm«]ft of Mike Farrell, an esqwriraced manager to head
the Office of Student ^nancial AssistanceT I believe that Secr^ary
Alexander and Mr. Farrell are on the rigltt track in s^king to better polipc
school participation in student aid programs and establ^ the cai^iUty to
monitor the conq)lex fiimncial transai^ons inherit m the OSL pn^eram.

Increased account^iliiy is a crucial part of any fitrther reforms in the
system. Oversight by fbc triad of bodies reqx>nsible for the program:
accrediting agemHes* state licensing entities and tte Dq^aTtment of

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287

-3-

EducatiOD» tmsX be ^rtagtlmied. There is some evidence that all three need
to be stiCTgthCTed ^n"e reauthorizatkm. In i^xt two days of
hearings, bq)efuUy we will receive some specific »iggestions for how this
cmght to be acconq^Ushed.

I look forward to tearing from each of the witn^ses.

238

Chairman Ford. Mr. Kildee?

Mr. Kiu)EE. Thank vou, Mr. Chairman. Just brieflyt in my neigh-*
borhood in Flint, Midiigan about tiie cmly way that a person can
to rollege is Uiough financial help, through pit^rams like this.
it*s very important that we not oniv serve more people—because
there are many studrats in my neighWhood who i visit with who
cannot go to college — we serve more, but that we do maintain the
inti^ty of the pn^[ram, and I think both go hand in hand. I look
forward to this hearii^^.
Chairman Ford. Mr. Gunderson?
Mr. GuNDERTON. No comment.
Chairman Ford. Mr. Andrews?

Mr. Andrjsws. Thank you, Mr. Chairman. Thank you for, once
a^dn, assembling an interesting imnel that we all look forward to
hearing. I think there is a broad public consensus hi my district
and, I think, throughout the country that acc^ to higher educa-
tion for everyone from every ne^hborhood in our society is a good
thing.

The one thing that could corrode and undercut that public con-
sensus would be the understanding or the perception that the
money is going to the wrong people, that when we set standards
and guidelines as to who's eligible for financial aid funding, that
that money is not reaching the students and families that it ought
to reach.

I think that it's probabl>r an exaggerated perception, but it's one
that we must address in this reauthorization proems so that we can
continue the broad bi-partisan public support that's alwa>^ existed
for higher education funding and for the notion that anyone can go
as far as th^'re willing to work to go in our society.

So I look forward to hearing the recommendations of today's wit-
nesses, and I thank you, Mr. Chairman, for this opportunity.

Chairman Ford. Mr. Barrett?

Mr. Barrktt. No forma! statement, Mr. Chairman, other than to
say I am pleased to be able to imrticipate in this very timely hear-
ing on pn^am integrity in our student financial assistance pro-
gram.

Thank you.

Chairman Ford. Mr. Reed?

Mr. Reed. Thank you, Mr. Chairman. I'm delighted to be here to
participate with you on this very important topic. Out in my dis-
trict and, I think, throughout the country, we face a crisis m af-
fordabiUty in higher education. Working families are finding it
more and more diiTicult to pay for higher education. This is cutting
into our ability to compete, in the snort run and in the long run.

What's most fnistratmg and, indeed, infuriating is the sense that
some of this Ic^ in afTordability is the result of poor management
of our loan pn^ams. It is incumbent upon us to look cicely and
carefully to ensure that loan pn^ams are adequate, that we are
providing resources eflfidently to people who need them, and that
we aren t subsidizing inefficiency or something worse than ineffi-
ciency: incompetence or, indeed, malfesance.

So we have a task before us of great importance: to ensure that
we are providing educational opportunities for all Americans, doing
it fairly and emciently. It s not only the right thing to do in terms

289

of the individual development of American citizens, but if we don t
do this, our economy will not be competitive with the world m the
next decade, or the next century. , * u

This is an unportant task, Mr. Chairman, and I m proud to be
here with you today. Thank you.

Chairman Ford. Mr. Henry? ^ . ,

Mr. Hknby. No opening statement, Mr. Chairman, thank you.

Chairman Ford. Mr. Gaydoe has submitted a statement for the
record. And the Honorable Sam Nunn, Chairman of the Senate
Permanent Subcommittee on Investigation, at our mvitation, su!^
mitted a statement for the record because he could not be here. 1
believe last week we put the report of his subcommittees 1 year
long investigation in the record. Without objection, both of these
statements will be inserted, at this point, in the record.

[The prepared statements of Hon. Joseph M. Gaydos and Hon.
Ssun Nunn follow:]

O 4 4

c 1 i

ERIC

240

opening Stdteatnt
Joseph n. Gaydos
Hay 29, 1991
Postsecondary Education Hearing

Tventy-five years ago, when the franers of the Higher
Education Act were Btill in the »idst of designing the various

student assistance programs including loans and grants

they decided that an annual audit of the student loan
insurance fund should be conducted by the General Accounting
Office.

Today, with the Department of Education overseeing a 24
billion dollar operation and guaranteeing over 12 billion
dollars in bank-originated loans every year, we have to know
what is going on, well, as we all know, we don't.

In the 25 years since the passage of the Higher Education
Act, there has never been an audit of the student loan
insurance fund by GAO.

GAO has made numerous attempts to audit the student loan
fund but has given up every single time because the records
are so deplorably bad*

GAO has nade nuaerous recomaendations over the years to
correct the Departaent's financial reporting probleas. But
the Department's efforts to correct those problems have been
largely unsuccessful.

Before abandoning its latest audit attempt, GAO concluded
that the Department's financial statements are unreliable
because the accounting system that the Department is using
does not produce accurate information.

- 1 -

ERIC

241

Th« Dvpartmnt of Education inspector Goneral reached the
•aM conclusion in his report of Septeaber 30, 1990. The XG
also noted that three of the Departunt's account balances
differ with the balances in its 9enerBl ledger by as much as
21 billion dollars.

hn6, aore recently, a review teaa headed by the Office of
ifanageaient and Budget and the Education Department concluded
that the Department's management practices contribute to high
student loan default rates f and fraud and abuse in the student
assistance programs >

That same review also found that, in many cases, the
Department can't answer even basic questions about the loan
program*

Because of this review, the Department adopted a plan
last mcnth to improve its management of the loan pcogram. X
sincerely hope this plan will finally fix the problems instead
of simply providing more lip service that might delay
implementing real solutions.

Quite frankly, X have my doubts. Twenty-plus years of
watching the mismanagement doesn't raise my hopes too high.

X am concerned, however, that the loan program might
suffer* Hy criticism of the Department should not be
translated into criticism of the student loan program, which
is effective and worthwhile*

What 1 find completely appalling is that the Department
of Education — whose responsibility it is to oversee and give
accurate information about the programs — still, after 25

* 2 -

242

y»or8f can not provide us vith verifiable, real nuabere
regarding the actual costs of the prograas.

The idea that ve nust rely on assuaptions and estiaates
when aaking aajoc policy decisions that directly affect
educational assistance for American students is something we
can no longer tolerate.

X realise it is too auch to ask that the Oepartaent get
its house in order and have an audit completed before we
finish this reauthorization of the Higher Education Act*
Keeping auditable financial records really shouldn't be such
an insurmountable task. Hopefully r there will be a completed
audit before the next reauthorization. But 1, fo*- one, will
not be holding my breath.

ERIC

24S

STATEHENT FOR THE RECORD
Stttoittad to th©
HOUSE SUBCCWMXTTEB Wl K^TSECONDARY EDUCATION

THE HONORABLE 5AH NUHN, CHAIRMAN
SEHATE PERMANENT SUBCOMMITTEE ON INVESTIGATIONS
May 29, 1991

Mr* Chftirwan and wejnbers of the Subcommittee oii
PoBtsecondary Education, I appreciate your invitation to
provide a statetaent for the record as you reasses, in the
context of the Higher Education Act reauthorization, the
critically important issue of student financial aid, I
understand that the Permanent Subcoroittee on Investigation's
report, "Abuses in Federal Student Aid Programs r" has already
been dade part of the record of these hearings and, therefore,
my remarks will be brief and to the pjoint,

AS you know, in late 1989 the Permanent Subcoimiiittee on
Investigations initiated what becawe an intensive, year-long
examination of problems relating to proprietary schools
participating in the U.S. Department of Education's Guaranteed
Student Loan Program (GSLP). In the course of this
investigation, the Subcommittee held eight days of public
hearings, at which testimony was received from dozens of
witnesses representing all involved GSLP institutions and
interests. The exhaustive record from these hearings, and the
equally exhaustive underlying investigation by the Subcommittee
staff, provide the basis for the final report, which was filed
in the Senate on May 17, 1991.

The report concludes that the GSLP is riddled with
fraud and abuse and suffers from severe mismanagement and
regulatory deficiencies. The Subcommittee found that the
mechanism on which oversight of particii^ting GSLP schools
depends — the Triad of licensure, accreditation, and
certification/eligibility provides little assurance that

students are being provided with the quality education and/or
training mandated by the Higher Education Act.

In addition, the report concludes that the lure of fast
and easy program profits, coupled with ineffective government
oversight, have had devastating effects on GSLP financial
intermediaries lenders, guaranty agencies r ioan servicers,
and secondary market organizations. The Subcommittee also
found that through gross mismanagement, ineptitude^ and neglect
in carrying out its regulatory and oversight functions, the
Department of Education has all but abdicated its
responsibility to the students it is supposed to serve and the
taxpayers whose interests it is charged with protecting -

As a result of these extensive and pervasive problems,
both the GSLP s intended beneficiaries — tens of thousands of
young people, many of whom come from backgrounds with already

244

- 2 -

liaited opportunities — and the taxpayers have suffered. The
former have been victimised by hundreds of unscrupulous,
dishonest, and inept proprietary schools, receiving neither the
training nor the skills they hoped to acquire and, instead
being left with debts they cannot repay. Likewise, taxpayers
have been ultimately billed for billions of dollars of losses
in defaulted loans, while at the same time fi»Qny school owners,
accrediting bodies, and lenders and other financial players
have profited handsomely, and in some cases, unconscionably*

In sum, the Subcommittee believes that virtually none
of the GSIiP's major components are working efficiently or
effectively and, as a result, this vitally important program's
credibility has been severely eroded and its future prospects
hang in the balance. Accordingly, with the aim of restoring
the program *s integrity and returning it to the well-intended
purposes and stated goals from which it has deviated ^ the
Subcommittee report offers more than two dosen recommendations
for further consideration. The number, breadth, and scope of
these recommendations reflect the Subcommittee's view that
nothing less than a comprehensive, sustained, and intensive
reform effort is needed, in order for the GSIP to survive its
present difficulties «

In this latter context, I look forward to the
opportunity to work with you and your Postsecondary Education
Subcommittee colleagues in the Senate. I am hopeful that, as a
result of changes already instituted or mandated by Congress
during the past two years under the leadership of your
Subcommittee, the installation of the new Secretary of
Education, and the recommendations of our Subcommittee report.
Congress and the Administration will take full advantage of the
opportunity presented in connection with the reauthorization of
the Higher Education Act. Moreover, I am hopeful that as a
result of this seeming convergence of interests and concerns.
Congress and the Aftoinistration will act decisively to assure
that the GSLP sgain becomes the vehicle for educating and
training Americans young people it was intended to, and should
always, be.

21.)

245

Chairman Ford. And without objection, the prepared testimony
of each of the witnesses will be inserted in the record, immedi^ly
following their comments. The vritn^^ can pnx»ed to add to
them, hi^hl^ht tliem, supplement them in any way you feel will be
most helpful to the record.

We'll start with Mr. Sanders.

STATEMENTS OF TED SANDERS, UNDERSECRETARY, DE-
PARTMENT OF EDUCATION, WASHINGTON, DC; ACCOMPANIED
BY MICHAEL FARIffiLL, DEPUTY ASSISTANT SECRETARY OF
STUDENT FINANCIAL ASSISTANCE AND ACTING ASSISTANT
SECRETARY OF POSTSECONDARY EDUCATION, VS. DEPART-
MENT OF EDUCATION. WASHINGTON, DC; THE HONORABLE
JAMES B. THOMAS, JR., INSPECTOR GENERAU U.S. DEPART-
MENT OF EDUCATION, WASHINGTON, DC; LAWRENCE H.
THOMPSON, A^ISTANT COMPTROLLER GENERAL FOR HUMAN
RESOURCE PROGRAMS. U.S. GENERAL ACCOUNTING OFFICE,
WASHINGTON, DC

Mr, Sandkbs. Thank you, Mr. Chairman. It is a pleasure to be
with you here this morning and to participate with you as we work
together to restore public confidence in the student aid pn^ram.
We are also equally concerned about working, internally and with
you, to nratore confidence in our management of the pn^fram.

I would, at your pleasure then, summari^, Mr. Chairman, my
formal testimony to you, breaking it into two psuis this morning.
First of all, to ^etch for you some of the l^fislative proposals that
are pertinent to today's discussions, and then also to talk with you
briefly about the joint Education/OMB management study of the
student aid programs. .

In the iMislative proposal that we'll be forwarding to you m the
very near niture, we do have several items tiiat will assist in carry-
ing forwani this agenda of discu^on this morning. First of all, we
are proposing that you establish a minimum course of instruction
of at least 6 montl^ or 600 hours as a condition of eligibility for
Title IV student aid programs, separating, lfflsi<»lly, education
ftom very, very short-term training for the purproes of these pro-
grams.

We are also asking that you grant authority to lenders to per-
form credit checkMhat we delay the loan disbursements for some
60 da^ to the flr8^year students at schools that have default rates
of over 80 pen»nt, and that we require lenders to provide graduat-
ed repayment options to borrowers. None of these proposals, I b^
lieve, are entirely new. They have been discussed both by us and
you in the past.

We a^ are bringing forward to you, though, some new proposals
that would sug»Mt irays that States might partidrate in the ris^
of borrower default: first of all, to put the equivalent of full faith
and credit of the Stat© behind a guarantee agency that has l»en
designated for the State, and then, where defaults might exceed 20
percent, the State would pay a share, that is that portion that
might range above the 20 percent.

These ideas we put forward, Mr. Chairman, to try to provide not
just risk-sharing, but some incentives for States to take more sen-

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246

ously their c^li^tions of overs^^ht of schools and of lenders that
are domiciled within their States.

We are aim asking that we be allowed to reduce the special al-
lowance f»yments bv some one^fourth of I percent to lenders who
have default rates which excmd 20 percent, thereby requiring lend-
ers to particiimte in sharii^ the risKS with us of d^aults.

We also would require in our proposal that guarantee agencies
submit their reimbursement claims within 45 davs after Uie lender
guarantee payments have been made. We would also require, in
our proposal, Sally Mae to report any loans that they are making
to lenders with an outstandmg bamnce of over $50 million or
whenever it makes any Icmn to a guarantee agen^, thereby allow-
ing us to keep better track of both lendere and, particularly, of
guarantee agencies who may be experiencmg difficulty.

We are also asking for authority to specifically require guarantee
agenda to submit to us management plans where both administra-
tive and financial reasons would exist for their doing so. That
grows out of our experience with HEAF and, now, looking at our
experience with other guarantee agencies. And this authority to
the Secretary to require management plans ^ms very, vei^ ap-
propriate to us as we seek to work with a^ncies that may be about
to or are experiencing difficulty in assuring ^t they do, indeed,
address thosr problems and work themselves out of particular diffi-
culties.

We're also asking that you require minimum reserves for agen-
cies whose administrative or financial condition is weak. We're also
asking you for the direct authority to be able to terminate a guar-
antee agency's agreement when we determine that it's no longer
able to perform its duties.

WeVe asking that you give the authority to the Secretaiy to,
under those circumstances, araume the guarantee agency functions
whenever the agency withdraws or happens to oe terminated,
thereby taking us out of the precarious kind of situation that we
found ourselves in during the HEAF difficulty of not necessarily
having the direct authonty and directly man^ a difficult situa-
tion.

We also are suggesting that you establish new conflict of interest
requirements on membere of bK>ards of guarantee agencies and the
members of their families with other corporate entities that may
be doing business in the student aid field.

We're also asking that you require driver's license numbers and
other borrower locator information that we may use in the collec-
tions process, as well as authority to garner a defaulter's wage.

We also are working on a couple of other proposals that we
would like to refine and to work on with you. One of those would
be trying to reach a determination of what might be satisfactory
pn^ess towards a degree or completion, for determining a stu-
dent's continuing eligibility for the prc^am.

We alsD, Mr. (Jhairman, last fall, after the early experiences with
the HEAF situation, went to the Office of Management and Budget
and asked them to help us to put tc^ether an intense study of the
management of student aid programs in the department Specifical-
Iv, what we wanted out of that process was not, simply, to identify
those actions that we might come to you and propose that would

2r,i

247

help us to addr^ the prdblem, but to look very, very specifically
at areas where we already had the authority and that we might act
to improve l^iis pn^ram.

The findings are many. They break out into four general areas.
Our conclusifHis, to summarize them, was that Immdally our man-
agement cai»city was inadequate for these prc^p-ams, that we had
too few financial analysts on staff that could help us to exercise the
proper oversight of this program, and, in many rases^ our data
system could not provide vm even answers to very t^c qurations
about the program and its CTst-effectiven^.

Generally, the recommendationst as I mentioned, fell into four
broml areas. First of ail, assuring that only le^timate educational
providers partidimte in the pn^ram. This ti« to yours and Mr.
Coleman's opening comments about the gatekeeping functions and
how we might go about strengtiiening tiiat triad of accreditation,
State licensure, as well as the department's certification process. It
also gives us some very specific recommendations as to how we
might improve our m<»iitoring in both specifically targeting and
the quality of thrae efforts*

The second broad area dealt with the improvement of the dejmrt-
ment's oversight of participate]^ guarantee agendes and lenders. It
calls for specific actions that would strengthen our financial over-
sight of those institutions, would provide minimal solvency require-
ments, and calls for stronger sanctions where those are necessary.

The third area dealt with the structure of the pr<«ram, and gen-
erally called for our consolidating all of ^e student aid operatioi^
under one rraponsible man^ement official; that means directiy re-
organize the Office of Pc^tsecondary Eduration, and includes ac-
tions all the way to the support of adding staff which we have re-
quested in combination of our 1991 and 1992 fiscal year appropria-
tions—the addition of some 150 PTE to help us in the management
of this prc^rram.

And the fourth set of actions dealt with steps that we could take
to improve our management of information of data in this j^rticu-
lar pn^ram. One of the things that we concluded as we went about
this pnx^ and as the Secretary had indicated to you when he ap-
peared in the general presentation of our reauthorization request,
we heard everywhere we went, as we have talked about, the im-
provement of this pn^rram was not only the need to put all of the
piec^ tc^ther under one cognizant authority, but to hire a very,
very strong nunager to cany out those functions.

And we believe, Mr. Chaim^, members of the committee, that
the Secretary has done that with tiie employment of Mike Farrell,
who is seat^ here at my right for the panel discuiraion today, so
that he might also participate with us, be<^use he is already taking
very aggressive and affirmative steps to implement the recommen-
dations contained in this joint report.

I would stop there, Mr. Chairman, and let the discussion take us
where it might.

[The prepared statement of Ted Sandere follows:]

ri ^

248

TMtlBcnqr By

Deputy McntAxy
U.S. DmwtBmt of B^icatim

bofrao tbo

Bouso SubeonittM on VtmtmmconAmry Sducation
on

Stiad«nt Aid Prograa Accountability an^ Xntsgrity
Wodnooday, Nay 39, i99i

n '1

249

I M plMMd to •ppMr Mm this CcMltM todftj tp tMtify «boot tb«
I plaaa to praoto frwitor proim oeeouitabiUtf «ad ivt^rltr 4a
tJbm •tttdmt Aid pvofimi«

for ihm pMt 25 joor*. tbo ttudmnt noaneUl Aid rroyrM vofloetod
osr BotioMl oflMltMnt to «oo«rln« • ^t—aao6^vj odoeotiOTi o^porttmitf iot
«U i— Ilri»ni SflM 5.8 aUlioo 9t«a«t« ottoodlaa tvOOO po«t««eoQdsc7
iiMtiCQtioM to«« rMttlvod OMiTlT $!• HlUeo thio put •o&ool ymw. Is iIm
CifiirftAtoofl St«4oot Fr o g r — o1«q«» nov loon voIim is n» aoorlj
$11 bllUoa.

Thoro feovovM, • Mod to rostoro fi^io eoofitaifto Ifi tho#o
imgrm. fiofoolt oo«t«» hft«« oov twmM $2*7 Mllicm thtm yoar, oro

eloorly mn iodieotioB of thm oood to cako fwrtbsr Mtien. Immtlcfttloo* ood
•todio* both thm DitpartMAt ond tho Ooastoo« hofo rovoolod oookoo«oM io
tba etimmt prefrnM*

la odditiosf ow tho poat six amtH* »• w^ortook »4th th« Of flea ^
BMocMsnt ftod fcidfot » *t»dr ^ •cudont f innol oX oid wMfwoot
praetieoa. »•»• atodioo bavo ahooo that ttera avo two aajor aroaa tbat oood
to bo addroaaodi atwatoral obaogaa to tbo pyo graoa «Aat vonld roqulra
l^alatioa and laprov^ oanas^aaur hf botb tha Pa po rt w a n t aod otbar ontitiaa
iovolvod ifi tha aMcdatratioo of tbaaa program. I» botb tbaao araaa» tha
PopartMOt baa takm aggraaalTO atapa oodar eomat lav and aada ouMrwia
lasiaOatlw propoaala. Ut mm bifhlifbt mm of thaao.

laniff^ '^'^ C«>t«>l P^fault Coata

In 1909, tha SoparCMt pobUabod dafaolt ratotiofi roftOatiooa that
atttterisod Isltiatioo of ll^tatioo, aospmioo, or torvioatifm (I5&T)
proeoadlnga, baflmlos ^ l^lt for aoboola oitb anaoal d^ault rataa abova
40 poroant. Llaitatioo aetiooa lapoaa additiaoal raqttiraamta for aeboola to
partiaipata lo tba atodont aid pr^raaa* aneb aa raqulriAg merm fraqoaa.
aadita. Soaponalon aetieaa tasporarily aasaa aeboola to loaa tbair profraa

ERIC

250

•lifiVility for to It sonth*. tbnlaAtifMi aetions r«mXt In thm lomm fif a
•cbool'a alliiMlity feir at laaat l« Iaa*d Urn im tuahort

Maolt T»t#a czpactad to ba valaaaad aa J0I7 1, I99Xp 50 ta 100 aalMla m^y
ba aabjaot to IMT aotioo en tMa baaia by Uta aaaMr.

Siibaac|Baatl7» tba C^Mlbaa Mgat Baaooalliatloa Aet ^ 1990 prorldad
additional U4T lofialati^ aatbority for all G8L prograM* Bog innim tbia
aoaaavt aaboola vith a 39 parccnt or higbar dafawlt vata for tbraa eooa^ativa
yaara C1997 to 1999) vIH l<m tbair aliflblUtT to partielpato io tba TO.
prograo for tbraa yoara* Aa a ratolt> aasij aeboola vitb dafaalt rataa abow
3S paraa&t vill 00 loagar ba aligiblOf aad ia atibaaquaot yaara additi^»l
aeboola say loaa tbair aliglMlity aa tba tbraabi^d d ag l ina s to 30 pareaot Ib
199%.

km aootbar good aampla of Adalniatratioa propoaala aeeaptad by
Congraaa* tbo Ckalbua iodgat lacooelliatioB Aet (flttA) of 1999 barrad atudanta
attasdiog aeboola vitb default rataa ^ 30 par ean t or aora f roa raoairiag
fupplaamtal loasa to Stadoat fStS) leaoa* Iba Soeratarr ol^o aotborisad
to taba abort-tan aaorgancy aetioaa to bar froa partieipatioo ia tba atadaot
aid progma tboaa aeboola ai^ laskdara vitb fraadolant or i^ropar praeticaa*
Tbaaa aaargaaey aetioaa iaMdiataly evt off fimda to tl»aa aeboola oatil tba
emeloaioft of aa adaiaiacraCiva baariag proeaaa. To data* 24 asargaaey
aetioaa bava baaa tabos, la additieo, tba Oapartawat ia eurrmtly rariaviag
too eMBm9 vbicb aaj lead to Ma rgaae y aetioaa.

Za raeaat yvarat a* bava alae iaeraaaad tba aosbar of progras raviava of
aeboola f goaraaraa agaaeioa asd laadara tbat era eoatotod by Papartaaat
poraoaaal« frograa roviava ts^ovar mnj viola tioaa tbat aay aubjaet aeboola
to L8iT aetioaa* Oar pTograa raviava bava rlaaa fro« a lev of 627 ia 1907 to
a bigb of If 975 raviava ia 1990. Siaty-aavaa tarsiaatioa aetioaa bava already
baaa iaitiatad ia I99i« 22 of vbieb raaaltad froa tba 19S9 aatbority to take
•sargaaey aetima to auapomi fvadiag for aeboola #

251

thila m good •t«Ttv tb»M •taps Imvs aoC fm f^r mgton§h to e«mat ch*
proM^t I iii^ l^UUtiim ebMftM ^xia^ommA thm AdbialsMtieo in thm pMt
tev* not bM& *ee«^«d« llmi m 9»rt of oar 114 rMsttorlMtiPO |ifopo»al«»

Mi ■ ■iiii^nilliU •dditioMl •etim «• bidim ar* nacwwiry to
praoto fisrttec «ee«mt«Mlit7 la tho GttonatMd StudMt Loom pr^m.

logloloti^ poGkogo oro 4ofoolt vo^tioo propo#olo« gMrmotoo
oymey i^roTWOSkto, dofonltod looo eollootioQ propooolo, rlok oborlutt ^
•ffortf to fwduoo «o«to9 fraud ood abuM. Tbaao propoaala mrm oaaootlal toola
aad daaorva to bo onactod*

Oor dofault roductios pr^aaXa iscluda oatablialiiiit a aliiirai courao
la&ath of alx Mktba or 600 konra aa a eooditiw of oliiibllity for all
Tttla IV atttdMit aid prograaa, rM|iilrint laadara to porfotm crwllt ohaeka,
dala^nft loan diaboriwwota for 60 daya to firtt-yaar atodanca at aeliooXa vith
dofaolt rataa oror SO pareooti a^ roquirios landara to provldo graduatad
r apa yp ao t opticma to borrovara*

ftyiTiaT.it t^^r BK*i^" Ihwtct— nta

To proMta wra affaotivo ovaraisht of guaraataa agaooiaa aad Xattdara»
vo aro propailnj to ra^ra Stata» to abara tba riak of borrovar dafaulta# Va
propoaa to tia Stata and landar coata aad aebool participation to tbair
parfonanea in 6oatrolUa« tka iscidasea of atodant loan dafaulr.a« Stataa can
balp radnea dafatdta by ■onitorin$ soarantaa afancy oparationa aora eloaaly
atmctkanint tkair procaat for licanaing aeboola*

Va vottld raqttlra aaeb Stata to baok ita daaiynatad fuarantaa aganaj vitb
tka aqttivalaat of tka foil faitk and eradic of tka Stata. Va aoald alao
raqnira Stataa vkara aekool dafanlt rataa mxc^md 20 pareaat to pay a abara of
tka dafaalt ooata* ^ ara alao propoaing to ra&«a apaeial allovaoea paywanta
by .25 pateant to landara vitk dafaalt rataa axcaading 20 paraant.

To Inprova goaraataa aganey oparationa, «a propoaa raqoiring goarantaa
aganaiaa to f ila for rainattMoaa elalaa viUiin 45 days af tar tha landar
guaranty paysant ia mdai rainborting goarantaa aganoiaa for aatoal

252

*dBliii»tr*tiim eottSf op to om |Mrfi(uit of loon iroluaoi roqulrlng roport* Iron
thm SCttdMt Loon Iferkotinf Asoociotion vbooovor it aokoo • loon to o Indor
vith on outotottdiog bolaneo ovsooding $50 ipHlioOf or i^ooovor it aoko* o loan
to o gttorontoo ogmcTl o^ roquirint goorontoo ogooej — aogiwnt plono,
IneludiOft peofiblo roforv^ ainiBiM for tkooo ogoiiciof vbooo odainiatrotiv* or
finonelol oeoditloo i« vook*

Vo oro olsp prepe«int to taminoto • soorootoo ogoney'a ocroosrat if thm
Soerotory dotoraisoo that thm mgmr»j io no longor obXo to porfom its
rovpooolMlitioo* Oor prop^olo would outlmlio tho Socrotorj to mmmmm
esrtoin fuorsntoo ogoney furctiosiOf to thm ostont bo dototminoo nocofoorj*
wtan m fuorontoo m$mntf vltMrovo fron tlio fiSL progrM or if ito ograosont tm
totminotod.

Tho DoportMnt'o propooola vowld olao pr^bit o guaroocoo ogoncy fro*
pofsitting choir offieoro« •^Xofooa, oi^ thoir foaiXy aonhora frooi having a
diroot finonciol istoroat in my loadort oocradarp «orkot« eontract or»
oorvicor for tho guaranty ogonej. 1!ho Soerotory vmdd olao hava aothority to
inpoao anr or oil aanetiooa Ispoood hy ono goarantoo agonej en aehoola or
landoro on o natioovido haaia* Thia omild oliminato a oehool or londor*a
ability to "ahop around* for onothor guarastaa agoney vhon aaoetiona «ra
ispoaad by thoir curront guatmntoo agoncy*

^>afonltad Loan CftU^fet^opa
Ptopoaala to iaiprovo dafaultod loan eolloetiona wuld ineludo roqulring
otudonta to provida a drivor'a lieonaa nti^or ond othor borrevor locator
infotMtion* Thoy muld olao outhorioo guarantoo agoneioa and tho Soerotary
to garniah a dofaoltor^a vo^a«

Qthar Prapojul^

ffa aro eurroatly i2o«»loping and invoatigating altamativo approachoa for
onanring that fodoral aid gooa only to thooo atndoota oho roeogniso tho
iaportaneo of odtiaation and oho taka thoir atudiaa aoriotialy« Thio ineludoa
an aaaoaaaost of tho nrroot otacotory proviaim that roquiroa a atudont to
aako *aatiafaetory prograaa* tovard a poataocmdary dagroo or eortifieata* 9o

2r,

253

•rm •i*© hem ^9t to oontrol tb* f«d«r»l «o»t* low tltort-tsni

Xa Ad^ticm* M AT* propMifig to Clgbtn th« d^initioo of n
ittdtpradkmt .tiKkrot. It U tvvm thmt m stotet U Hn rn nrimU y ixOmf^nAwnt

hmwm bi9 or b«T SMd for tvdmat mXd 4«tomls«a without roiord to tto
Tmo»roo» of bio or bor fpsUj. boorort tbo evrront AifliUtlim lo opw* to

potOBtisl obttM.

In odaicioa to o«r Xogiolotlvo proiNMlf, tbo Poportwnt io tborooibly
ororbouXiog it* aMogMont of tbo otti4oot oid pr^nw* April if 1991 ^
Socrototy iMr 4loxon4or oad Offieo of SuiM^Mnt ond M^mt («•) Diroetor
liflbord O^vwn OBaoofwod • «voopiQ$ ttudont old — i ng Mi n t laprovowmt pUo.
1bi« plao VAO do^opod by m Joiat wmofMont rovloo t«o« of oboot §5 pooplo
from tbo Dop^rcaont. OHB, mod ols otbor Fodorol ogmoioa, «bo otoootod tbo
O^rtMt** intosnol moitnont proetleoo io tbo oroo of ftudoot oid.

ItiMlff^* ^iflow TtW ^IHlllTlil
Ibo roport foimd tbot, lo addition to tbo foot tbot too m»ny iboddy
oebooXo porticipoto in tbo ttttdoot oid pn^roM, tbo OoportMot foilod to
roOBt oorly oad tako offoctivo oetien to prowt tbo coXlopoo Uot yoor of ow
of tbo ootlos'o largoat studoot looo fuorwitoo ogooeioOp tbo Bigbor gducotion
Aaaiauiitco 7oiisdotioo <BXtf).

U addition, tbo too* ootod tbat tbo BonagMont capacity of tbo
DopartMnt*o Offi«.* of Footaocondary Idocation <0P1) roMina inadoquato. OPI
baa toe f ov qualifiod finaneinl analyata on ita ataff . tbl* llaita it a
obUity to rariov and onforco tbo roqnlwaonta of tbo atudont aid prograna.
fortbor, OMO roport* it cannot audit tbo CSL prograa bocana* aaeoaating
rocorda aro poorly ■aiotoiood. lo «any caaaa, tbo Oopartaont ia wocblo to
onavor acM l>ocic qoaationa aboot tbo GSt prograa and ita coat
offaotivonoaa. Tboa* oMkooaaoa io tbo Dopartaonfa aanagCMnt practicoa
bavo aado oddroaaiag tbo bigb loan dofanlt rataa mov difficult, aa ooll aa
oacooragod frand and abuao by partlcipwita lo tbo atodont aid prograsa*

ERIC

47-062 O-n g

264

fbm raport r t nn — n d i foor mjow liiiiiMiiiUi llr«t* «msim xhmt ealy
l«gi«liliit« •dttcAtiOBAl pr ofid f fftrcieif««« Ia mtfm «ld prograMi Meoedv

l«cid«T«| third t e9B»oIid»t« »XI vtudtot a14 opmtlm* ta^r m vtt«pafi»lM#
offioiaXt and fonrtii« ia^rov* InfozMtico MfUf—nr

niraiih •trraftlMiMd sort eoordifiacad "t^talGMplat* aad aooitOTini,
tb« fitpsTtMat eao wiumrv tliat only lafitiwit* •dsuttoa*! pTovld«T«
pBT«ioipBt« Is th« atudmt Aid progrvM. V* atr^ mr ewMTMd about tlw
adaqaaey of our etirrttt 'sAtakMpta^* ayatM for tpoatooooadary odtifiatitA
ifwtitutiooa i^eh moftampmmtmm aaerodltatioiit ftsto mf^rcmilt moA OopartMDt
oortifloatioa. T o prn i r a — o f aro alraady ndatwj in tba Papartamt'a
pToea&uraa for eartifri«t and wnitorii^^ tlia adsiaiatratlva aapaelty and
f in a ttffiial ataMlity of partiaipatlns laatittstlooa. Tba SMratary la auraailT
taviaviss thm naad for lagialativa abai^aa ia thia eritieal ar«a.

By vorkiac vera cloaaly vitJi lio«uins boarda aad aearaditint af aneiaa.
aa eaa aataVIiab bighar aligibilicj acasdardc for isafcitotional partiai?ati«m
ia tiM atttdaot aid prograaa. Va eaa alM iaiprova aadita* wmitorlag •
aasctiona aitb raapaet to aeboola vitb iaadaqaata finaacial raaooreaa and
practleaa. Tbrough aahasead vmwtwm of initial pr^ran aligibiUty and
ia prnv ai i ta In tha proeata for taminating participation ia tha G8t progran,
•» ean aaaura that aeboola that ara daaignad for tba pnrpeaa of bilking tba
0«S« govamaant— and tba taxpapar^-vill ba allMinatad fto« onr atndant aid
prograna.

Inprorad ovaraigbt of goarantaa aganeiaa and iaadara that partioipata in
tba CSL progran ean provida an aarly anraing of problaM aad timly
l^*P*rtaantal intaramtion vbara naeaaaary. Aia vill raqtUra gmatar
financial ovarai^t« aatabliabing aanagaaaat plana vbieb can inalttda siniaiM
fi n a n cia l ^aaaey raqoi rwn ta for tba gnaraataa aganeiaat ^ fatara
avoidanoa of problasa of goarantaa aganeiaa lika BUT. Xaeraaaad aamtiooa
agaiaat aganeiaa and landara aba fail to caaply vitb ateiniatrati^ aad
fi n a nci al raquiraaanti «onld fnrtbar aup port tbia affort.

255

viU TC^ttlM a fwrs«oU»ti«o of Offie* ^ rMt»ae«id«rf Utscatiflo* Bohm^
fiaraoial — mgM«nr «U1 Isolvda Iseiwaad €«»ls»iQS to nrrlM and rof 1m «b»
vtslUs of oxiattsi •caff 9 oddirioool ^oolifiod ocaff to 190 aoro m thoa
is lf90« if tbo im ht^^t raqooat ia aypro w od ) aaalgDod to f in a twl a l p
amlTUeal. aa4 ea^liaseo aetivitlaat and iaprovad ayataa* md pxoeadima for
mtfoX and itooiaioa-wkii^, H ia li idi i ^ eorraettn« tbo aariow ooaknaaM* la
tlM earmt — Dafrat isfotwatioo ayvtM*-

Tba Sooratary baa appolatad Mlehaal J. Furall aa 9»]a»tT Aatiataat
iaecotary for Sttttet Tinanelal 4aai*ta&oa and Actiai Aaaiataat •aeratav^ for
favcaaaoBdary Bdueatloa. la brlnga a ftrimi aaaaiaMiit ^rapaotiiw to tba
poaitioa f rfl« bia ajqpariauca i» prlvata ladaatry* Mr* farrall ba» ovarall
r«spooaibaity for laplMaatlaf tbo Adaioiftratioa'a •tudaat *id aaaafaMnt
rafovB plan. To balp blM la tblt ta»k, ra«r«ltsoQt af fortf ara alraady
tia^fvay to brinf on addltioa*! staff vttb tba naeataary ai^rtlsa*

X veuld ba glad to dlteua* o«r propoMi* la «ora datail or to aaMor asf
of foor qtta*tioaa«

2f; >

256

Chairman Ford. Mr. Thomas?

Mr. THOBtAB. Thank you. Mr. Chairman, members of the subcom-
mittee. I am pleased to be here today to provide comments regead'
ing integrity in the Federal stuitent finaiicial araistance programs
and to oner recommendations for consideration during reauthoriza-
tion the Higher Educatian Act

My testimony this morning addresses the Federal Student A8sis^
ance programs as they currently exist I would nc/te also that these
recommendations are my views as inspector general of the I)ei»rt>
ment of Education and do not represent the views of the adminis-
^tion.

The OIG has performed numerous audits, investigations, and in-
spections of schools that participate in the Federal Student Assist-
ance programs under the Higher Education Act. And in this testi-
monv I could recount numeroiis horror stones we have found, but
tiie key imue at this juncture is not whether a pr^lem exists or
i^ether the problem is wrious; the record demonstrates that the
answers are clearly yes on both counts.

Inst^, based on the OIG's oversight of these pnu^ams, I will
offer our perspectives and proposals in Kveral areas. On accredita-
tion: we found that the department's amrediting agency recogni-
tion profess did not induce adequate research and analyas to
assure that only reliable a^ndes were recognized by the Secre>
tary. In addition to administrative changes, we recommended in
our report that enabling l^islation require accrediting agendes to
develop and cmisistently apply specific criteria for evaluating insti-
tutional quality.

Secondly, we noted instances in which accrediting agencies pos-
sess information i^^ardii^r serious financial a>mpliance or other
pnri>IemB at schools, but are reluctant to share such information
with ED or other oversight entities due to f*»ar of liability. We
would recommend that the HEA be amended to require such shar-
mgof infonnation.

Conoeming institutional elkibiUty, our work disclosed that the
department cannot be assured that all institutions that are deter-
mined to be eligible to partidpate in the SF A programs met or con-
tinued to meet the eligibility requirementa We suggested adminis-
Native improvements which will strengthen the proce^.

In addition, however, legislative consideration ^uld be given to
establiahmg performance^ased eligibility requirements in the re-
authorized IffiA, which would be applied by the department In ad-
dition, since the termination of eBgiHli^ is hravily dependent
upon State licensure, consideration diould be given to legislation
reauiring States to establish and consistently apply adequate stand-
ards for determining the quality of institutions tiiey license.

In a general area on audit, invratigative, and insp^tion

Xrience related to institutional eligibility, we urge that consider-
I also be given to the following legislative changes: Unless ade-
quate controls can be legislated to provide for effective control of
foreign and correspondence school, such institutions G^ould be
barred from partidration in the programs.

The HEA should be amended to require owners of corporate pro-
prietary schools to be personalljr liable for school losses. So that
when the schools close or otherwise fail to meet their financial re-

JRJC

267

sponsibilities, owners are not able to escape with large peraonal
profits while the taxpayer and the students are left to pay the bill

L^islative changes appear necessary to prevent program abuses
associated with course stretching, perhaps, by requiring that course
length be certified as appropriate by the State or by the accrediting
agency as a condition of course eligibility.

Schools that use rommi^oned salespersons should not be eligi-
ble to participate in the pn^rams, because the current limitation
that they not "promote the availability of any Title IV loan pro-
grams" is unenforceable and wholly inadequate to prevent abuses.

Our reviews of the department's process for certifying schools as
adnunistratively capable and financially responsible disclosed that
these processes did not prevent deficient schools from pn^ram par-
ticipation. Generally, the department agreed with our findings and
is implementing many of our re«)mmendations. While much is
being done, the Coi^grMs should ensure that the reauthorized HEA
provides the department with all the authority needed to prohibit
administratively weak or financially troubled institutions from pro-
gram participation.

We have found that tuition oMts now being charged by certam
proprietary schools are not a reflection of the whool's costs of in-
struction and operation but merely a reflection of the maximum fi-
nancial aid that's available. Accordingly, we urge that consider-
ation be given to enactment of a provision that would require msti-
tutions applying to participate in Student Financial Aid programs
to di^lose the ^is for the tuition chaises.

In the PLl^ pn«ram. we have found applications with false in-
formation, and often the student did not exist. We have recom-
mended that the PLUS pn^nram r^ulations be revised to require
that the PLUS loan checks be sent directly to the school and be
made co-payable to the borrower and the school. To the extent that
legislative authority does not exist in current law to allow these
changes, such authority should be provided in the reauthorized
HEA. , . ^

Despite the overwhelming presence of secondary markets m the
loan programs— about 40 percent of the outstanding loans are
owned by secondary markets— and l(»n servi^rs managing over 40
percent of the outstanding loan portfolios, our reviews direlosed
that there are no existing audit requirements, or existing audit re-
quirements applicable to those entities do not provide the depart-
ment with the information needed to protect the integrity of SFA
funds held by th^ entities.

Our recent work in the secondary nmrket and the servicer area
discloe^ that additional audit requirements are needed to improve
the oversight of these student loan participants.

Mr. Chairman, that concludes the summary of my statement. I
would be happy to respond to questions as you see fit.
[The prepared statement of James B. Thtmas, Jr. follows:]

2!;:

258

STMmnr of

ZMSFBCniR GBnaUOi

U.S. o^joExiaarr or sraoKTm

BSFORS TBB
SDBOQmZTTEB OS P OS T SB O OK DMnr BLOCaOIOII

oomxTTBB o« mocmov mq> iabca
o.s. BoasM or wsPBSsmmamss

Rogardlng

Xntagrity in ndaral Stntest Financial Progzaaa

May 39, 1991

25S

Mr, ChairMn and Nambars of thm Subcosaaittaa —

1 an plMsed to here today to provide comi»nte regarding
integrity in the Federal etudent financial aseistance (SFA)
proqr hMB and to offer recoxamendatione^ for cone iderat ion
during reauthorization of the Higher Education Act CHEA).

My teetioony thie Borning addreseee the Federal student
aasietance progra»e a» they currently exist. To the extent
that the Suhcoamittee is considering alternative approaches
to Federal student assistance and could benefit froa our
views regarding controls needed to protect the integrity of
alternative programs, we would be pleased to assist the
SubcoBOBittee further as you might request.

The OIG has performed numerous audits, investigations and
inspections of schools that participate in the Federal
student aseistance programs under the HEA; the numerous and
serious instances of fraud and alnises disclosed ~
particularly at proprietary trade schools ~ bave led the

^Summary List of Recommendations is Attached.

260

010 to identify th... program a. th. ao»t vumar.bl. to
fraud and abusa in tha Departnant.

Jn this taatloony 1 could racount nuaaroua horror atoriaa of
atudanta who vara laft with larga loan obligation, but
inadaiiuat. training to obtain job. to pay thow loan.; of
achool. which clo.ad affr thay casa undar acnitiny, laaving
atudanta without tha naans to conplata thair aducatlon and
.till liabla for larga loan obligation.; of achoola which
continuad to participat. i„ tha Fadaral program, da.pit.
growing unpaid rafund liabilitia. and othar ragulatory
violation.; of corporata propriatary .chool. that daclarad
bankruptcy, laaving larga liabilitia. to .tudant. and tha
Fadaral govarnaant while tha ownar. raaped larga profits
which cannot ba raachad to satisfy tha liabilitia.. Th. OIG
ha. in it. Saai-annual report, to Congraa. over tha la.t two
and one-half year, reported en case, involving all of these
abuea. and sore.

But, rather than recount particular exanples of ea.e. where
our OIG inve.tigatora, auditor, and inapactora have uncovered
fraud and abuse, let m try to illuatrata aore auccinctly
the Mgnitude of the problea in the proprietary .chool area
with thoM .tatistic.

For the year. 1987, 1988 and 1989 —

o At the ten proprietary school. x.pr..enting the
largeet aBount. of Pall grant, and Federally inaurad loan..

ER?C

261

students r«ceiv«rd over Si billion in Fed#ral aid (aore than
tvica thm anoiint recaivad by atudants attanding schools in
tha alavanth through twentieth positions) ;

p Of thasa tan propriatary schools , OtG raviaws
hava uncovarad r^^latory violations at six of them, and
in at laaat four casasr our OIG invastigations hava uncovarad
avidanca of criminal activity;

o Tha avaraga 1908 cohort dafault rata for thasa tan
propriatary schools was 3S parcant;

o Thasa tan top racipiants of Titla IV funds hava had
significant incraasas in funding lavals in tha last thraa
yaars — six racaivad an incraasa of mora than 60 parcant in
Titla IV funds in ons yaar alona;

o Aftar tha cosnoancamant of an OIG audit or
invastigation, four of tha top fiva schools closad thair
doors and/or stopp«l racaiving Titla IV funds, and tha othar
was a chain of schools that closad many of its individual
schools aftar declaring bankruptcy. Studanta at thaaa fiva
achools racaivad in axcass of $757 Billion in Fadaral studsnt
assistanca funds;

o Tha propriatary school %^osa atudants racaivad tha
most Fadaral aid — a corraapondanca truck driving achool
currently under investigation — alone received alsost a

quartar of a billion dollars, and its cohort dafault rata for
1988 was 46 parcant;

fui^s for its studants in thosa yaars alona ($160 Billion) —
also a corraspondanca truck driving school against which tha
Dapartaant of Justica has panding a aulti-ailiion dollar
civil suit baaad on our work which ahowad that tha school was
navar aligibla to partici|»ta in any Title iv program — is
nov in bankruptcy and claims to ba without assets to pay avan
tha outstanding refunds owed to former students*

These statiatica demonstrate that Title rv-funded proprietary
trade schools can be big businsas, and participation in theae
Federal programs is worth literally hundreds of millions of
dollars to owners* Abuses by even a small niimber of schools
can cost taxpayers huge sums. Moreover, the volome of
Federal funds at stake in any one such school can change
dramatically in a very short time frame, so that large
amounta of federal funds may be placed at risk before
appropriate regulatory action can take place, under the
current statutory and regulatory scheme *

One other important point needs to be amphasizeds all of the
top ten proprietary schools are corporationa and under the
programs as currently administered, the Federal government
requires no guaranty or undertaking of personal reaponsi-
bility by the owner{a). Tharefore, when liabilities mount up
and are uncovered after an OIC audit or invastigation or

The school that received the second most Title XV

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DapartMnt rmvimw, thm F#d«rftl govarnMnt must look to thm
TOrporation alono to Mtisfy Titlo IV-rolatod liabilitias*

In our •xporianca, as in most of thoss casss, ths coxpora-*
tions at that juncturs ars vithout ths asssts to mast thsss
liabilitiss^ and thus studsnts and taxpayers cannot rscovar
asounts svsn approaching thsir lossss. In thsss casss, ths
ovnsrs valX away vith Billions dollars in Fsdsral student
assistancs funds, and it is difficult if not impossible to
reach the owners' gains.

The ateses and loopholes in the student assistancs programs
as thsy currently exist and are currently administered are
well known to the Congress; ths Ssnats Psrmansnt Subcommittee
on Governmental Affairs held hearini^s last year that docu-
mented abusss on ths part of propristary trade schools.
Congrsss in the 199D Budget Reconciliation Act made a good
start at enacting reforms to addrees the ever increasing cost
of thsss programs dus to such abuses, particularly the
provisions making high^default schools insligibls to
participats in ths Federal Title IV programs as well as the
tightening of the so-call^ ••ability-to-benefit" requirement.

But the above-cited statistics and track record for these
programs where some proprietary trade schools ars concerned
demonstrats that a great deal more reform needs to be
legislated to eneure that Federal taxpayers pay for ths
services of only quality schools offering access to quality
education and training likely to enhance studsnts' job

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264

•kills, and that students and taxpayers ars adequately
I>rotected.

The key issue at this juncture is not whether a problea
exists or whether the prohlso is serious — the record
demonstrates that the answers ars clearly "yes" on both
counts* The issue facin? ym as legislators today is
specifically what should be done to address thsse problems.
Based on the OZG's oversight of these programs, we offer our
perspectives and proposals in the following areas*

Accreditation

Generally* our review in this area disclosed that the
Education Department's {ED) accrediting agency recognition
process did not include adequate research and analysis to
assure that only reliable agencies were recognised by the
Secretary. Further, the process did not hold the accrediting
agencies accountable when they continued to accredit schools
with high default rates or schools that abused the Title IV
programs* specifically, the process did not adequately
evaluate thoss agencies that accredit a large number of
proprietary institutions that have high default rates and
other deficiencies. However, despite thess wsaknesses and
ths lack of assurances provided by the recognition process,
the Department usss the accrediting agencies' decisions as
one of the two primary criteria to determine schools'
sligibility to participats in the student financial
assistance programs. As a result, billions of dollars

265

av»ilabl« to «tud»nt« uch y«ar through loans and grants ars
at risk, in part bacauss tha racognition procass doss not
assura that tha accraditing agancias usa appropriata and
affactiva poXiciaa to accradit schools.

Our raport on accraditation racosmandad controls to
strangthan tha Depart»ant's raviav of patitioning accraditing
agancias* Spacif ically, «ra raconowndad that EX) conduct »ora
in-dapth raviavs of thosa accraditing aganciaa that accradit
schMls that raprasant tha greatast risk to tha Titla IV
funds. Further, ve recotaiBandad that ED request third party
inforaation on tha parfonaanca of accraditing agancias aa a
first step in the review process so that tha information can
be used in planning tha raviav.

If tha Department implesents tha racoomandations in our audit
raport on this area, particularly the racojamandations
concerning mora in-depth analysis of agencies that accredit
schools that represent the greatest risk to tha student
financial assistance programs, va believe that tha
accraditing agencies will be held mora accountable when
accraditing or continuing to accradit aub-standard schools.
Also, if theae recommendations are implemented, the general
public could place greater reliance on the Department's
process for recognizing only those agencies that are reliable
authorities on tha quality of education and training provided
by accredited achools. In turn, tha Oapartmant'a procaas for
determining the eligibility of schools to participate in and

266

draw down th« billions of dollar* availabla through tha Titla
IV programs vill ba atrangthanad.

Zn addition to tha adminiatrativa changaa citad in oiir
raport« va baliava cartain lagialativa aaandaanta ara naadad
to furthar strangthan tha accraditation procaaa* Firat, to
ansura affactiva ovaralght of Inatitutiona participating in
SFA programs, anabling lagialation ahould r^iuira that
accraditii^ aganciaa davalop and consistantly apply apacific
critaria for avaluating institutional quality. currently,
tha Sacratary, aa wall aa tha studant and taxpayarr must raly
on accraditlng aganciaa aa raliabla authorities regarding
program quality, but current law requires no specific
atandards by which program quality ia evaluated.

Secondly, we have noted inatancea in which accrediting
aganciaa possess information regarding aerioua financial
compliance or other problems at schools, but are reluctant to
share such information with or other ovaralght antitiea
due to fear of liability, ^erefore, becauae it appears that
instances of program abuae could be reduced if accrediting
bodiea were required to ahare auch information with the
DepartMnt, we recommend that the HEA be amended to require
auch aharing of information.

Finally, we reconmend that section 1205 of the HEA be amended
to include language prohibiting per eons serving aa mambera
of the national Adviaory Committee from engaging in any
Committee activitiaa that would raault in a conflict of

07 »

267

Intarmt, and that section 1205(a) torn axpandad to raquira
appolntaant of aona CoasittM mmbars vho ara ax^riancad in
tha aanagaaant and financial oparationa of highar ^ucation
inatitutiona*

Inatitutional Eligibility

Tha currant procaduraa for dataraining poataacondary
inatitutiona' aligibility to apply for participation in tha
Titla IV atudant financial aaaiatanca prograaa raly prinariXy
on tha procaduraa of accraditing aganciaa and Stata licanaing
aganciaa. Tharafora, aligibility to participata in tha SFA
prograsa ia baing dacidad primarily by accraditii^ aganciaa
and Stataa, rathar than tha Dapartmant. Alao, bacauaa of
othar daficianciaa in tha procaduraa for conducting tha
initial avaluation and tha four yaar updata, va concludad in
our raport on tha aligibility procaaa that tha Dapartmant
cannot ba aaaurad that all tha inatitutiona it daten&inad to
ba aligibla to participata in tha SFA programs mat or
continua to maat tha aligibility raquiramanta*

To atrangthan tha aligibility procaaa, wa hava racommanded
that ED:

o improva procaduraa for idantifying individuala convictad
of fraud involvimr Fadaral funda and immadiataly
tarminata inatitutiona' aligibility whan thay fail to
maat tha aligibility critaria;

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288

o t«k« th« mcasaary actions to update both automated and
aanual eligibility files;

o establish and impleoHint a written plan to have the over
4,000 institutions whose eligibility is currently
overdue, redetenained within a reasonable ti»e frame;

o immediately notify all pertinent ED offices and the
guarantee agencies by telephone or PAX machine when
institutions' lose their eligibility, and confirm that
stop-payments were placed on the institutions;

o establish a separate office to handle complaints, and to
advertise the office so that the public is aware of it
and is better able to direct its complaints.

We believe that, if implemented by the Department, these
improvements will strengthen the process by which schools are
determined eligible to participate in SFA programs. m
addition, however, we have not^ areas where legislative
change appeare needed to adequately ensure that only
legitimate, quality institutions are determined eligible for
SFA program participation. For example, the definitions of
""eligible institutions** contained in current law maXe no
reference to the quality of institutional performance.
Therefore, it is difficult to deny eligibility of a school if
it is licensed, accredited and meets certain administrative
r«iuireaents, even if its performance record is poor.

269

Consldsratlon should be given to establishing i>erforsiance-
bassd eligibility requirements in the reauthorized HEA,

Additionally, there appears to be a need to clarify the roles
and the responsibilities of the Federal government, the
States, and the accrediting agencies in the institutional
eligibility detenaination process.

Before the Department determines an institution to be
eligible, it requires that the institution be licensed by its
State and accredited by an accrediting agency recognized by
the Secretary. Since both the States and the accrediting
agencies have significant variation in their requirements,
the eligibility determination process does not assure a
consistent level of quality for the institutions considered
eligible to apply for participation in the SFA programs.

Since determination of eligibility is heavily dependent upon
State licensure, and because there exists wide variation
among States regarding their licensure requirements, some
minimal State licensure stam' Is ap^ar needed* Con-
sideration should be given to rft^quiring States to establish
and consistently apply adequate standards for determining the
quality of institutions they license.

Based on our audit, investigative and inspection experience
related to institutional eligibility, ve urge that con-
sideration also be given to the following legislative
changes.

270

rhm sov«r«i9nty of foreign govamsients hampars
iBposition of r»quir«Mnt9 to •nfiurs effoctive
adainistration of student loan prograas by foreign
schools, thus there is currently no swans of ensuring
tha quality of education provided or proj^r adainistra-
tlon of loan programs by such institutions, Siailarly,
the nature of correspondsnce schools makss it difficult
if not iapossibls to ensure that such schools provide
high quality, effectively adainistered prograas* Thus,
unless adeqiiate controls can be legislated to provide
for effective control of foreign and correspondence
schools, such ins^zitutions should be barred froa
participation in HEA Title IV programs.

The HEA should be amended to require owners of corporate
proprietary schools to be personally liable for school
losses* current liw allows Title IV participation by
corporate proprietary schools, but does not provide a
aeans of holding schcK>l owners personally liable for
losses caused by a school's failurs* Thus, when schools
close or otherwise fail to meet their financial
responsibilities, owners are able to escape with large
personal profits whils the taxpayer and student are left
to pay the bill. Further, we recoBMnd that the
legislation be aaended to ensure that school owners are
held personally liable for the accuracy of information,
claias or other statements on which institutional
eligibility is based.

271

o illative changes appoar nocassary to pr«vant program
abuses associated with cours® stretching. Courss
stretching la the artificial expansion of courses beyond
the length needed to prepare students for «aployment so
that such courses vxll qualify for Federal student aid.
One approach to solving tJiis problem would be to amend
current law to require that course length be certified
as appropriate by the State or by the accrediting agency
as a condition of course eligibility.

o schools that use comnissioned salespersons should not
eligible to participate in Title IV. The abuses created
by sanctioning financial incentives for getting students
enrolled regardless of their interest, ability and needs
have been documented. The current HEA limitation on
commissioned salespersons in 20 USC 1085 ~ that they
not ••promote the availability of any {Title IV J loan
programs* ~ is unenforceable and wholly inadequate to
prsvent abusas.

Institutional Certification

Our reviews of the Department's process for certifying
schools as administratively capable and financially
responsible disclosed that these processes did not prevent
deficient schools from Title IV participation and did not
assure that students and the Government were protected when
schools failed before providing all educational sarvicss

r I
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272

dtt«. For iiistanc*. In thm tvo and on« half ymax pariod andad
Jiim 30, 1988, wa aatlMtad, baaad on information availabla
from tha guarantaa a9ancy tape dump aiuS within SD, that 53
schoola cloaad bafora all aducational sarvicaa vara racaivad
by th« atudanta. As a raault, m aatiaata as oany as 10,000
atudants lost tha banafit of loans and grants worth about
$30 Billion for which aithar tha atudants or tha Govsrnmnt
nuat assuBS rasponsibility. ED did havs soraty arrangamanta
with savan of tha schools; howavar, tha arrangasants only
covarod about 91 of tha total guarantaad loans at risk and
did not covar ED'b cash advancas for Pall grants to tha
institutions* furthar, procaads fron only ona of ths suraty
arrangaasnts vara collactad bscauss ED's controls wara not
adaquata to assura that claios and collactions wara inada whan
schools closad.

Tha adsinistratlvs capability cartif ication process raliad to
a graat sxtant on tha integrity of tha preparer s of tha
certification applications because validation of tha
representations, such as on-site testing, was not performed*
Further, institutions ware routinely certified and
recertified deepite indicators of administrative capability
problem (e.g., high withdrawal and default rates). As a
result, billions of dollars ware at risX in part because ths
Departaent did not take action to lisit the risk when
indicators of ispaired administrative capability were
present.

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273

GmftTAlly, thm D«partMnt agr«^ with our findings in thmmm
Battflirs and is is9laMnti»si many of our racosmandationa to
atrangthan tha inatitutional cartif ication procaaaaa and thua
l>attar protact atudants and taxpayara froa financial loaa.

Hhila much ia baing dona to is^prova tha cartif ication
procaaa, tha Congraaa should anaura that tha raauthorisad HEA
provldaa tha Oai^rtaant with all authority naadad to prohibit
adniniatrativaly vaak or financially troi^led institutions
from HEA Titlo XV program participation. In addition, %ra
raconsand spacifically that Saction 490 of tha HEA be changad
to includa aa criminal conduct, tha attampt to commit thosa
offanaas idantiflad. Currantly, a param who cwaaits any of
tha aantionad offanaas cannot ba prosacutad undar thia
statuta unlsss ha/sha actually racaivas monay* Thus, a
parson submitting falsa statosants, for axampla, can abusa
tha Titla XV programs, but not be penalized unless such
action results in receipt of funds «

Major Problana Cauaad By We^kneaaee — in — Accreditation i

CertifieMtion and Bliaibilitv

Our audita, invaatigationa and inspections of schools
participating in HEA Title IV programs have identified
several major iaaua areaa that appear to result from
waaKnessas in the accreditation, eligibility and certifi-
cation procaaaaa. Among thaae are the following:

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274

fiCAXtfUl fiaamUA. proprietary schools aust bm

accrsdlt«d, llcsnssd by thsir stats and opsrats for two
ysars bsfors thsy can bm sliglbXs to participats in tha
studsnt aid prograas* Hovsvsr, many schools havs
circusvsntsd thsss rsquiranants by craating branch
cas^usss . As a rasult , thsy hava axpand^ rapidly
bayond thair adainistrativa and financial capability to
control properly ths prograas and fulfill rasponsi-
bilitias to students « l«hile aany ars concerned about
the growth of branch caspusas, acre naeda to be done to
correct the problem.

As the two year rule has always been and still is part
of the legislation governing the Title IV program^ we
believe that most of the problems could be eliminated by
merely applying the two year rule to branch campuses «
Rsluctance to enforce the rule, combined with the
lucrativaness of the school business, may have lured
some long time school owners away from the business of
educating students to profiting from students. Further,
the recent growth in the proprietary school industry,
aided significantly by branch campus ing, has placed a
strain on both State licensii^ and accrediting agencies,
to ths point that their ability to control quality and
ensure accountability has been significantly reduced*
We have recommended that the Department take steps to
enforce the two year rule as a meana of regulating
branch campus expansion.

275

Ability to Banafi^ . Recant HEX aa w nd a anf requiring
•tudmtf without high school diploma* to pasa an
indapaiulontXy-adainiatarad, nationally racognizad taat
as a condition of SFA aligibility should raduca abusaa
in this araa . Hovovar , va ara concatmKl that school
ovnara ara alraady attasipting to circiimvant thasa nav
raquiraaants, Wa wara informd of ona casat for
axaapla, vhara a faaily menbar of a school ovnar vaa
astablishing a coi^ny to adainistar tha nationally
racognisad tasts to non-high school graduates . This,
ia, in our viav, a lass than arms langth relationship
which would violate the independence intended in tha new
H£A provisions, ^e Congress should consider defining
the tera *inde|>endent'* ss it relatss to testing of non
graduate SFA applicants,

Ceuraa Lantrth and Couraa Stretching, Our reviews have
found that in order to qualify for participation in
atudant aid prograaa^ sosa schools have misrepresented
tha langth of their couraas, assarting they ara longer
than they actually ara. ED's procedures for reviewing
reported course length data do not include verification
of the actual hours required to complete the courses.
Naithsr state licenaure agencies nor accrsditing bodies
are required to verify course langth rapreaantations by
applicant institutions.

In order to qualify for student aid, soms schools have
developed programs that are longer than needed to

276

qualify atudents for gainful exnployiaant. This results
in needless time in class and inflated debts to
students. Adequate oversight could have prevented
schools from doing this.

To correct these problems, we recommended that the
Department seek legislative authority to approve course
length, assign clear responsibility for determining
course length, and establish a mechanism for monitoring
that determination.

ClQCK to credit Hour conversions. Credit hours are used
as course length measures at degree-granting institu-
tions where credits may be transferred, while clock
hours are used by certificate-granting schools. Clock
and credit hour equivalencies for measuring course
length are present in existing rsgulations, however, EO
accepts conversions that vary from these equivalencies
if such conversions are approved by accrediting
agencies. Our review show^ that some schools made
unreaeonable conversione siaply to qualify previously
ineligible clock hour programe as eligible credit hour
programs. We believe action muet be taken to limit
abuses that occur when echools assign unreaeonable
credit hours to clock hour training programs solely to
obtain additional studsnt aid fxinds.

Two possible approaches to solving this problem would be
to (X) establish statutory equivalency between clock

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277

hours and credit hour* or (2) rM«rv« credit hour course
masureunt for daqraa-grantii^ institutions.

si^ ^nd PLUS Programs

Additional controls specific to the Suppleaental Loans for
Students (SLS) and PUJS programs are also need^ to protect
the interests of students and taxpayers.

Our reviews of the SLS area found that the introduction of
the SLS loan program to the proprietary school sector
resulted in a tremendous increase In SLS loans and defaults
and that this increase was due, to a large extent, to the
fact that certain proprietary schools used SLS loans as an
additional sourcs of income with little regard to the
student's increased iMn burden- The provisions enacted in
the Student Loan Reconciliation Amendments of 1989
restricting the SX-S loan program only to schools with a
cohort default rate of under 30 percent appear to have
already shown results in addressing this problem • However,
enacted as part of the budget legislation, these provisions
may be temporary and could be affected by future budget
legislation. Accordingly, we recommend that these or similar
provisions be enacted in thB HEA reauthorization -

Furthermore, we are of the opinion that proprietary schools
should be required to disclose the basis for the tuition
costs, we have found that tuition costs now being charged by
certain proprietary schools are not a reflection of the

278

schools^ actual cost of Instruction and o^Hiration, but ssrsly
a raflsctlon of ths aaxisuxB financial aid availabls.
Accordingly^ va urga that considsratlon b« givan to anactsant
of a provision that would raquira inatitutions applying to
participata in studant financial aid programs to disclosa tha
basia for tuition chargas.

In tha PLUS program, we found that at ona guarantee agency
over 193 applications involving 1X8 individuals contained
falsified information. Zn most of tha cases the student did
not exist* At an average of $3,500 in loans« the potential
loss to the taxpayer ia approximately $675,000. In a single
case, one former financial aid officer at a major university
fraudulently received $15,000 in PLUS funds by using false
names and social security numbers* This could occur because
PLUS proceeds are sent directly to the borrower rather than
to the school. To stem such abuse of the PLUS program, we
have recommended that tha PLUS loan program regulations be
revised to require that the PLUS loan checks be sent directly
to the school listed on the loan application and separate
notification of disbursas^nt sent to the borrower, and that
the checka be made co-payable to the borrower and school
listed on the loan application.

We believe that the opportunity for unscrupulous individuals
to illegally obtain PUJS loan proceeds at taxpayer's expense
will be greatly reduced if these recommendations are
implemented. To the extent that legislative authority does

279

not axist in curmnt lav to allow thasa changaa. such
authority abould ba providad in tha raauthorizad HEK,

Tnntitutienal and Hational Data Baaa

ED' a Znatitutional Data Syataa (IDS) ia tha only
coaprahanaiva aoiirca of data ragarding an inatitution'a
aligibility for and participation in tha atudant aid
pro^rraaa. Our audit diacloaad that it vaa so incon^Iata that
ita affactivanaaa aa a sanagasant tool for monitoring vaa
aarioualy iapairad. Many vital fialda partaining to tha
achool'a hamic aligibility qualif icationa vara blanX
including licanaing body and accrediting body information,
ED ia updating tha ayatam to antar aiaaing data and to varify
and iiq^rova tha quality of axiating data in tha IDS.

Efforta by DIG and tha Ganaral Accounting Offica (GAO) hava
continued to daiaonatrata tha naad for a CSL national data
basa for borrowara to aarva aa a national clearing houaa for
verification of atudant aligibility for a loan guarantee.

The major source of GSL information that the Department haa
available to it ie the "tape dump" which ia an extract or
dump of eelected information on each loan guarantee made by a
guarantee agency aa of Septnber 30 of ea^ year. The data
collected in the tape dump la necessary so that O) haa
information, among other things, for pr^jgram overeight; for
program ravieva at letters ^ achoola aiwl guarantee agenciea;
and for analyaia of borrovara for program planning and

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280

budgeting purposes. The data can provide statistical
infonation by type of educational institution or type of
lending institution on a national basis; annual default ratee
of scliools; and identification of possible violations of loan
Halts by borrowers.

The Department provides the guarantee agencies with
procedures describing how the guarantee agency aust prepare
its tape dump records, and how to submit then to ED. The
guarantee agency is also required to certify the accuracy of
the data* When ED receives the tai^s from the guarantee
agencies, it perfonas extensive validation procedures « Last
year many guarantee agencies' information was not adequate
and they had to resubmit their tape dumps. This caused quite
a delay before the information could be used. Xn addition,
there are indicators that cause us to question the accuracy
of some of the data.

The need for a national data base to identify unqualified
loan applicants has been doctuaented as a major problem since
at least 1981. The Office of Inspector General, GAO, and the
Department have all identified the serious abuse by scudents
receiving loan amounts in excess of the statutory maximums.
In 1984, £D proposed rules to help alleviate the excessive
loan problem and reduce program costs. The proposed rules
further noted that the problem occurs because each guarantee
agency maintains its own individual records and no national
data base exists to monitor statutory annual and aggregate
loan limits. They also noted that excessive indebtedness on

281

thm pAXt of studants also contrltoutas to a high dafault rata
which adds additional prograa costs to tha Fadaral Govarn-
Mnt* This was at a tins vhan tha rainauranca daCault claivs
paid for tha yaar vaa about $700 aillion^ not tha ovar $2
billion astiMtad for 1990*

ED was 9ivan tha authority in 19B6 to aat&bliah a National
Studant Loan Data Systaa (KStDS) which would aatablish and
carry out a nationwida, ccMoputarizad atudant loan data
systaSf containing infor»tion ragarding atudant loans that
ara vads, inaurad, or guarantaad. Howavar^ by law tha
Sacratary could not r^iuira guarantaa aganciaa to usa tha
VSUOB to dataraina borrowar aligibility* Tha Omnil»is Budgat
Raconciliation Act of 19S9 finally ramovad this raatriction.

Wa first raconaiandad astablishaant of NSDLDS in 1984 and
iaplasantation of this systeo is still years away. in the
aaantiaa, ED will hava to continua relying on a systea that
doaa not seat tha GSL prograa naada-

Wa baliava that iaprovaaant of ED 'a Institutional and
National Data Bases is essential to providing aeaningful,
affective oversight of the Departaant's student aid
prograas. while we know of no specific legislative changea
needed to enable needed iaproveaents we urge continued
attention to this area until iaprovaaant is accoaplished.

ERIC

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282

Departmfintal Accounting System

Because of systems problems, the Department's statements of
financial condition as a whole do not flow from and are not
supported by its accounting system as required by the
Comptroller General's accounting principles and standards.
ED'S Federal Managers' Financial Integrity Act (FMFIA) report
to the President and Congress concluded that ED's system did
not comply with the principles, standards and related
requirements prescribed by the Comptroller General.

I believe there is increased awareness of the importance of
financial management and there is increased involvement of ED
senior management in this issue. The Deputy Secretary has
established a Committee on Audit Follow-up and Infernal
Control. This committee meets weekly, is chaired by the
Deputy Under Secretary for Management and includes high-level
representatives from all Principal offices. It is charged
with coordinating the Department's compliance with the
Federal Managers Financial Integrity Act (FMFIA). Also, my
office has begun the process to audit the Department's
financial statements as required by the Chief Financial
Officer Act of 1990. Over time, these activities will aid in
improving ED's accounting systems beyond their current
condition.

Over the last several years, we have completed reviews of
part of the Departnent's Primary Accounting System (PAS) and
eight of its subsystems. Our audits have consistently shown

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283

maknMMS in Intsrnal controls vithln thm progras and
subsidiary aystsas that "fead* financial data to tha ganaral
ladgar. lia found that tha Mpartoant lacks affactiva
accountability and intarnal control ovar billiona of dollars
in apprcqpriation fund balances. Account balancas transferred
to tha Dapartunt at its inception ware groasly inaccurate,
and tha Dapartaant has not reconciled the general ledger vith
the subsidiary accounts or external reporta to Treasury since
the Department vas established in 1980. Managers are unable
to rely on the ganeral ledger or accounting subsystems to
provide valuable inforaation that they need for program
oversight or monitoring* However^ over the last three years,
the Department has taken action to identify and attempt to
correct problems with and errors in t: t general ledger. As
part of this effort, the Department identified billiona of
dollara of recording errors and other deficiencies and has
made adjustments to correct errors.

Our report in March 1988 on the collections subsystem
disclosed some basic weaknesses. Borrower payments received
on defaulted Federal Insured student Loan accounts were
deducted from tha principal balance rather than applying
payments first againat accrued interest* As a result, the
total amount of interest calculated for an estimated 248,000
accounta from their atart date was understated by about $17.3
million. We have alao found that accounta receivable are not
alwaya being recorded and reported acciirataly. In addition,
the subsystems did not completely identify delinquent
accounta because account aging was based on the most recent

2 S

284

paymant r«c«ipt dat«» without corwidaring thm aaount» that
wara |«»t dua. Aa a raault, about 9.000 account* with
outatanding balancaa totaling $21.1 alllion vara inproparly
clasaif iad.

Tha Dapartnant'a ayataoa also do not provida accurata and
raliaWa inforaation on ita potantial liability for
guerantaad atudant loana. Tha lataat financial atataoanta do
not diacloaa. avan in a footnota, tha contingant liabilitiaa
that ahould ba aatinwitad on tha ovar $50 billion of out-
standing CSL loan guaranteaa. From our liaited rasaarch in
thia araa, wa can ascartain only that tha Dapartmant, for
budgating purposaa, astimataa thosa dafaulta that should ba
occurring in tha currant or projacted budgat parioda. But
thasa aatinataa of dafaulta ara not diaclosad in H)'a
financial atataaanta. Sinca continganciaa ahould ba raportad
on financial atataaanta dapanding on their probability of
occurranca, it saaas only logical that tha Dapartaant ahould
ba reporting a contingant aaount that can ba reasonably
eatiaatad baaed on tha loan guaranteea »ade.

He ara currently participating in an audit with GAO of tha
CSL program financial aanageaant ayataa area. The ultiaata
objective of this audit is to render un opinion on tha
financial atataaanta of the CSL prograa.

erJc 2hJ

285

SBcendiirv M/irket and Servicer Qvergight

Over SllO billion in educational loan coaaoitnento have been
nada under the GSL program since its inception, and the
outstanding GSL loan portfolio has grown to over 550 billion,
with an unknown contingent liability for defaults associated
with it- Despite the overwhelning presence of secondary
markets in the loan programs {over 40 percent of the
outstanding loans are owned by secondary markets) and loan
servicers managing over 41 percent of the outstanding loan
portfolios, our reviews disclose that there are no existing
audit requirements or the existing audit requirements
applicable to these entities do not provide the Department
with the information needed to protect the integrity of SFA
funds held by these entities. Our recent work in the
secondary market and the servicer area disclosed that
additional audit requirements are needed to improve the
oversight of these student loan participants.

{|ffl;, yfw«»»-v iterkatB. Secondary markets are allowed to purchase
student loans from lenders to ensure that sufficient funds
are available for the guaranteed student loan programs.
Current Federal laws and regulations provide that State
authorities using tax-exempt funding must have annual
financial and compliance audits completed and sent to ED's
Regional inspectors General. However, our survey in this
area disclosed that most authorities ware not sending reports
to ED; and the reports being sent, because of the way the
current legislation is written, were not always financial and

^ 47^ 0-^1 10

286

co^pllancs audits vhich cov«r th« adxainistration of tha
quarantaad studont loan prograa. Also, under currant
laglslation/ secondary inarJcsts using taxable or state
financing are not required to submit financial am! compliance
audits to ED. Neither is the student Loan Marketing
Association (Sallie Mae), the largest secondary market with
over 25 percent of the outstanding GSL portfolio.

Part of the problem, such as assuring that the reports ere
received and acceptable, can and should be addressed by the
Department. Also, increased oversight will be afforded
because, as recommended by CAO and DIG audit reports, the
Department is in the process of regulating an audit
requirement of the interest and special allowance billing for
those •lenders" that have portfolios or make loans of over
$10 million in a year. However ^ an audit requirement still
needs to be legislated which would require annual audits of
secondary market's administration of the guaranteed student
loan programs.

The audits should be performed by a certified public
accountant in accordance with Government Auditing Standards,
issued by the Comptroller Cf^neral of the United States, and
an audit guide prepared by ED. This audit should be
submitted to EO's Office of Inspector General, and oversight
agencies, such as ED and guarantee agencies, should have
access to the audit working papers.

ERIC

Saryiearf > Gr^at^r oversight of th« prograa could also hm
affordad by tha inclualon of an audit ri^uiramant for
•arvicara* Many SFA partlcipanta contract with aarvicars for
all aapacta of SFA fiinctiona, ranging from procaaaing tha SFA
applicationa and caah aanaga»ent for a school, originating
and collacting on tha loana for a lender and avan Mating tha
litigation raquiraoants of a guarantaa agancy. with tha
exception of required biennial institutional audita which
could review specific segments of servicer operations, EO
currently does not regulate or systematically review servicer
operations* Our review of servicers in the guaranteed
student loan program disclose that (1) servicers have
significant control over tha guaranteed student loan program
portfolio, (2) a high degree of variability exists among
servicers, and (3) a high percentage of servicers are
affiliated with guarantee agencies and/ or loan holders. We
believe that ED is exposed to a high risk of financial loss
because of the failure to monitor third party servicers*

Servicer audita could provide a minimum level of assurance
that third party servicers are in compliance wit.i SFA program
regulations and a vehicle for early detection of servicer
deficiencies. An audit requirement could permit the
coordination of current audit and review efforts involving
servicers. Servicers may also benefit from an audit
requirement since a single, servicerwida audit would reduce
the duplication of audit and review effort which they are
currently experiencii^. Due to the frequent changes in
regulations and the technology used by servicers, an annual

ERIC

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288

audit xwiuirABsnt is nacassary to provida adaquata aaauranca
of coqplianca.

Spacifically, wa baliava that tha lagialation ahwld ba
changed to raqulra that SFA particii>anta that uaa sarvicars
to conduct part of its SFA function* nuat uaa only aarvicara
that hava an annual audit that saata ED raquiraoanta* This
audit ahould includa a revlav of tha internal control
atructura, ami teat complianca vith SFA laM and regulations
including compliance in those ftmctions perforaad by the
servicer on behalf of the SFA participant* rhmnm audita
would be required if audit coverage of the servicer is not
already required, or will ba required, under A-128, A-110 or
A-133. The audita ahould be perforvad by a certified public
accountant in accordance vith Government Auditing Standards,
issued by the Comptroller General of the United Statee* This
audit should be submitted to ED's Office of Inspector
General, and overaight agencies, such as ED and guarantee
agencies, should have access to the audit working papers.

Additional Chanaa Nasdad

Schools should not be entitled to evidentiary hearings on
audit and program determinations and limitation, suspension
and termination actions 1^ ED. The H£A currently entitles a
school to a ^hearing on the record^ when ED makee a
determination that the school should return Title iv funds
baaed upon an audit finding or a program determination, 20
use 1094. Similarly, schools are entitled to a "hearing on

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289

thm record" vh«n ED takss lialtatlon, suspension and
tarnlnation action. This aaans that "ED aust afford ths
schools In aost casss full svidsntlary, Adainistratlvs
Procsdurss Act (APA) hsarlnqs* That is tisa consuaing and
rssourca intsnsivs for S>. Furthsr, tha currsnt raquiraaant
is all too oftsn axploitsd by propristary schools that can
afford to aount costly laqal challsngaa vhils tha flow of
FederBl funds continues until ths hearing on the record is
concluded and a decision reached. OIG believes that all
relevant issues can be fairly and aore expeditiously
addressed with written subaissions and/or oral arguaent*
Section 1094 should be aaended to delete thm ^on the record**
language.

In suaaary, Hr* Chairaan, we would emphasize the need for
legislative changss that will ensure that only quality
institutions are peraitted and continue to participate in
Title ZV prograas; tliat increase oversight and ac^'ountability
of guarantee agencies, secondary aarkets and third-party
servicers; and that correct specific deficiencies outlined
above* We are confident that, with the introduction of
proper prograa controls, Fsderal student assistance prograas
can continus to provids posteecondary educational opportunity
to ailJions of Aaericans without exposii^ students and
taxpayers to the fraud, waste and abuss currently Xnown too
well to all of US.

Thank you, Kr. Ouiirvan. I will be happy to respond, at this
tiae, to any questions you or other aeabers aight have.

O t

290

Pa9« 1 of 3

Iieaislative Rscomdsidfttions
Reauthorization of the Higher Education
Act of 1965

Testinony

Recomaendation Pa9Q

1* Accrediting agencies should be required

to develop and consistently apply specific

criteria for evaluating institutional

quality. 8

2» Accrediting agencies should be required to
iaaediately share with the ED any and all
information in their possession regarding
serious financial compliance or other
problems that could effect a school's
participation in Federal student financial
assistance programs. 9

3* Statutory lanouage authorizing the National
Advisory Committee on Accreditation and
Institutional Eligibility should be amended
to prohibit ccmiBittee s^mbers from engaging
in committee activities that would result in
conflicts of interest, farther ^ such language
should require appointswnt of some members
experienced in management and financial
operations of postsecondary institutions. 9

4, Consideration should be aiven to legislating
performance-based eligibility requirements
for schools participating in Federal student
financial assistance programs. 11

5. Consideration should be given to requiring
States to establish and consistently apply
adequate standards for determining the

quality of institutions they license. 12

6. Unless adequate controls can be legislated
to provide for effective control of foreian
and correspondence schools, such institutions
should be barred from participation in HEA

Title IV programs. 13

7, Institutional eligibility requirements should
be iffiended to require owners of corporate
proprietary schools to be personally liable

for school losses. 13

291

Ijwtitutional •llglbilitv application raquira-
nmts ahould ba asandad to anaura that achool
ovnara ara hald paraonallv liabXa for tba
accuracy of information clais, and othar
atata»ants on ^ich aligibility ia baaad. 13

9. conaidaration ahould ba givan authorising ED
to amrova couraa langth or to raquiring that
couraa langth ba cartif iad aa appropriata by
tha Stata or by tha accraditation agancy aa
a condition of couraa aligibility. 14/19

10. Schoola that use cmaiaaionsd aalaa paraonnal
ahould not ba aligibla for Titla IV participa-
tion.

11. Tha HEA ahould ba amandad to provida ED with
all authority nacaaaary to prohibit waaX or
financially troublad inatitutiona froa Titla

IV program participation. 16

12. Tha HEA, at Saction 490, ahould ba aaandad
to includa aa criminal conduct tha attampt

to conit thoaa offanaoa idantifiad in currant
law.

13 • conaidaration should ba givan to dafining
tha tarm "indapandant* aa it ralataa to
third-party taatinq of SFA applicants who
do not poaaaaa a high achool diploma « 18

14. conaidaration ahould ba givan to aatablishing
a atatutory aquivalancy batwaon clocX houra
and cradit houra or to raaarva cradit hour
couraa aaaauramant for dagraa-granting
inatitutiona. 20

15. Currant proviaiona raatricting tha SI*S loan
procnram to low dafault schoola should ba
continuad.

16.

Conaidaration ahould ba givan to raquirino
inatitutiona applyii^ for Titla IV partici-

E at ion to diacloaa tha baaia for thair
uition chargaa* 21

17. Tha Education Dapartmant should ba ^^ntad

adaquata authority to raquira that PWS loan
chacka ba aant diractly to tha school ii»tad
on tha iMn application and ba mada co-payabia
to tha borrowar and tha achool. 22

Page 3 of 3

IB* Thm HEk should be anended to raquire annual
audits of secondary markets and servicers
participating in Title IV programs* 30

19. me current remiirement for *'on the record**
hearings should be deleted fros the HEA at
section 1094* 33

0/|

293

Chairman Ford. Thank you. Mr. Thompson?

Mr. Thompson. Thank you, Mr Chairman. 1 appreciate your m-
vitation to be here today to share our views about ways to further
improve one of our key student financial aid prc^rams, the Staf-
ford Student Loan program.

As you know, loan defaults have become an ever-mcreasmg por-
tion of the government's cost in operating the Stafford program. I
depict this on this chart that we've just put up. Defaults have nsen
from about 10 percent of the total program costs m fiscal year
1980, to 44 percent in 1990. In comparison, interest subsidies have
decreased to about 52 percent of the program's cost in 1990. In
1991, the lines may cross. Simply put, the cost of our failures is
about to overtake the cost of the successes. ^ ^ ^

The loan default problem has not been ignored. The Longr^
and the department have implemented many changes during the
past several years to address the default issue. In recent years,
GAO has made numerous recommendations, and I'm plea^ that
many of them have been implemented already. .

Nevertheless, further efforts are needed. In particular, m our
view, the department needs to do a better job of approvmg and
monitoring the schools that are allowed to participate in the pro-
gram, and to assure that the data systems are created that will
screen out ineligible students before they receive guaranteed loans.

Working t<^ther, the department and the Congress need to pro-
vide better incentives for lenders and guarantee agencies to assume
part of the responsibility for preventing defaults and reouire guar-
antee agencies to maintain adequate r^rves and avoid potential
conflicts of interest to better ensure their financial stability.

Changes such as these could reduce access somewhat, P®/*'"*;
lar. to students enrolled in certain vocational and trade schools. On
balance, we believe this risk if an acceptable price to pay for assur-
ing the financial integrity oi the student aid programs, but the
Congress and the administration will have to be sensitive to mini-
mizing any obvious adverse consequence as reforms are imple-
mented. , . « . 1

Mr. Chairman, let me mention, just brieHy, six key areas m
which we believe improvements can be made. Those are summa-
rized on my second chart [indicating] and many of them duplicate
recommendations that have been made by the previous two wit-
nesses, so I needn't dwell on them too long. They focus primarily
on ways of strengthe.iing the front end of the loan procras by in-
creasing default prevention efforts rather than improving post-de-
fault cdlection activities. ^ ^ * J _j ^
First, the department needs to establish better standards and
guidelines for screening schools that want to begin to participate m
student fmancial aid programs. Currently the departaaent relies
heavily on actions taken by State licensing a^ncies and private ac-
crediting agenci«>. And unfortunately, experience shows that these
organizations have their own goals and objectives and do not neces-
sarily act in the government's interest. » „

The department must araume responsibility as the ultmiate gate-
keeper of Federal student aid programs. It needs to play a more
active role in screening schools to reduce the exposure to financial
risk to the government and to students. It should ensure that

ERIC ^-^^

294

sdioolfi are financially sound and administratively capable of pro-
vii^ng the education that they advertise. In addition, it should look
at indicators sucb as student completion and placement rates.

To assist the department in playing a more active gatekeeper
role, at the requ«^ of this committee, we are currently examining
the standards or guidelines that could be develop»l and used to
evaluate schools more closely.

Sea>nd, the department must develop its new student loan data
system. This sy^m will provide dei^ment officials part of the
information they need to prevent student borrowers from abuses
such as exceeding statutory loan limits and receiving additional
Iwuis when they are alr^dy in default.

Third, we believe that alternatives should be developed that
would encourage more default prevention efforts by lenders. Such
chaises would encourage lenders to pay more attention to the
kinds of schools their borrowers attend and the repayment prac-
tices of students.

The department has propc^d two l^^lative change in its fiscal
year 1992 budget raquest that would r^uire lenders to assume
more accountability and risk for the loans they make. Briefly,
these would require that lenders provide borrowers with graduated
repayment options and reduce lenders special allowance pasrments
by .25 percent if they have default rat^ of 20 percent or more.

We believe that these proposals have merit. We, ourselves, have
proposed, previously, a thira approach; that is that lenders receive
less than a 1(M) percent guarantee on their loans so that they would
share in the risk of their defaulted loans.

Fourth, the department must develop standards of conduct and
requirements for sei»ration of duties among gimrantee agencies,
lenders, and loan servicing orranizations. These are ne«led to
avoid potential losses from conflict of interests as well as to im-
prove the credibility and integrity of the Stafford program. The de-
partment asks the Congress for the authority to i»ue such stand-
ards in its 1992 budget request. We encourage the Congress to give
the department this authority.

Fifth, we need to change the incentives for guarantee agencies.
Under current law, guarantee agencies have a financial incentive
to allow delinquent borrowers to default. They typically receive 100
percent reinsurance for default claims paid to their lenders and
can then retain up to 35 percent of funds subsequently collected
from defaulted borrowers.

We believe that the provision allowing gu£u«ntee agencies to
keep up to 35 percent of default collections should be repealed in
order to remove this in(»ntive. Instead, the collection responsibiU^
would be shifted to the department which would allow the Federal
Government to keep all of^the proce^ls, and it should enhance rol-
lections because the department possesses more collection tools
than the agencies.

We believe the program should be restructured to provide it fi-
nancial incentives that encourage more guarantee agency default

Erevention activities. Basically, agencies should be rewarded for
eeping delinquent borrowers from defaulting rather than for let-
ting them default and then collect.

295

Pinallyf we believe that the departaient ahould establish mini-
mum r^rve levels for guarantee agencies. No Federal require-
ments exist for financial reserve levels that guarantee agencies
should maintain, potentially increasing Federal exproure to pro-
gram lo^s. Failures to have such requirements undoubtedly con-
tributed to the HEAF collapse.

And again, in the 1992 budget requ^ the department has pro-
pose that Congress g}ve it the authority to require certain mini-
mum reserve levels for guarantee agenda as well as allowing it to
terminate its agreement with a guarantee agency if the reserve
level is too low. We support this proposal.

Staffonl Loans give eligible students acx^ to low-crat loans to
furUier their postserondary education. They play a pivotal role in
promoting opportunityi but they have been subject to abuse. Some
of the wetnesses in the pn^ram are related to the Department of
education's administration, others can be traced to provisions of
the H^her Education Act.

The administration is proposing a series of l^fislative changes
that, if enacted, could address many of the proRram's shortcomings.
We believe that our recommendations and sugg^ions, if adopted,
will help the Congress and the department to correct many of the
abuses and lead to a more efHcient and effective delivery of loans
to eligible students.

Mr. Chairman, that concludes the summary of my statement.

[The prepared statement of Lawrence H. Thompson follows:]

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296

Uaftcd SUtCT Ocoetmi Accwiulii^ OflBcg

StateTn#»ftt of
Lawrf*nce H, Thompson
Assistant Comptroller General
for Human Resources Programs

Before the

Sul>committee on Pofftsecondary Education
Committee on Education and Labor
House of Hepre^entatives

Testimony

For Release
on Delivery
Expected at

Vtilnerabilitie* in ths Stafford
Studont I>o«n Program

9s30 a.m. EDT
Wednesday
May 29. l'*91

ERLC

29?

Hx, ChaixMn «wl nm^rm of thm sul>coMatt««j

Z mm hmn toOay to mhrnrm our vims *tout s<m w«y« to further
iaprov* •tu4«nt f iMmrial «id progir«»» adainistarsd by th«
I>«p«rtMnt of Education. Thmmm prograM ara ajctraMly i^ortant
to ati^ata aaaking a poatsacondary aducation and to ttia futuxa
norkforca of our nation. In want yaara thaaa programs hava baan
tha aubjact of graat acrutiny— much of it fcKniaad on atudant-
borrowra who hava dafaultad in tha Stafford Studant Loan FrograR.

OTAFFQRD PP ncnAM PEMPECTIVE

M you know, loan dafault coata hava baan growing--fr<» 11. 3
billion in 1986 to $2.5 billion in 1990— and hava bacom an avor
incraaaing portion of tha govamaant'a coat in oparating tha
Stafford prograo.

Dafauita hava risan from about 10 parcant of total program costs
in fiscal yaar 1980, to 44 parcant in 1990.^ In ccwpariaon,
intarast subsidiaa hava dacraasad to about 52 parcant of tha
program's costs in 1990.^

*Tha dafault costs raprasant ralnsuranca paid to guaranty
agancias.

298

COHGRES^IQItXL. DEPAICTffiHTXL, AW) GAP
EFFORTS APDRESSIIiQ LQAS DEFAULTS

Th« loan default pr<^lM has not bMn l^norad* Tha Congrats and
tha Dapartaant hava iflq)l^Mntad nany changas during tha past
savaral yaara to addrass tha dafault iasua* For aaa^la# tha
Congrass anactad 18 plscss of lagialation ainca X9S0 that had ona
or aora provisions raiatad to studant loan dafattlta or dafault
collactions^ and aost of this lagialation has occurrad ainca tha
last raauthorixation.

Tha DapartMnt has also takan savaral stapa dasignad to improvm
tha intagrity of tha Stafford prograa* For axaapla, in its fiscal
yaar 1992 budgat raquast, tha Dapartaant proposad ovar 30

299

l«9iBl«tiv« chants to tho progru. ThoM propo»«i» include
dofaiilt provmtioA, default coUKtioni« and riaX-iharing

Xn Mrly 1991, tha D«aparti»ant and the Offica of Managasant and
Budgat cc»q>latad a Joint atudy of tha Dapartaanfa Offica of
I^ataacondary Education, Tbm rMultlng raport found tnat tha
Dapartmnt'a nanagMont practicaa contrilmta to high loan dafault
rataa and, TOra ganarally, to fraud and abuaa in atudant aid
prograM* Tha raport contalna pany racooMndationa that, if
inplamntad, t#ould raault In a major raatructuring of tha offica
to battar adainiatar and oyt9mm atudant financial aid prograaa.

Tha Coaptrollar Ganaral haa idantifiad tha guarantaad atudant loan
programa aa 1 of 16 fadaral prograna whara intamal ai«l aanagwant
control braakdoima ara placing tha fadaral govanwant at riak. QAO
haa iaauad ovar 30 raporta on hlghar aducation topica ainca tha
laat raauthorlxation of tha Hlghar Education Act in 1986 r «nd moat
of thaaa producta hava eoncantratad on atudant loana.^ «a hava
Mda nuaaroua racowndationa to tha Congraaa and tha Oapartaant
for iKprovaaanta, and ara plaaaad that nuiny of thM hava baan
iaqpXanantad.

VULHERAfllLT TIgs m THE STATTORP PRQQRMI

«• au^rt af forta by tha Congraaa and Daparti»nt to addraaa aany
of tha problam that hava baan idantifiad. wa alao aupport many of
tha Dapartnant^a currant lagialativa and progra^atic propoaala
which ahould atrangthan tha financial »anaga»ant of, aa wall aa
raatora confidanca in, fadaral atudant aid prograaa.

^A liat of thaaa producta ia attachad.

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300

K0MV«r, M ^ffllsv* further •fforts an nMd»d. To better •niun
ttat •li9ibl« itudsnts ar« cnpl«tln9 th«lr school •xp«rl«nc« and
rapaylng th«lr studmt loans, additional changaa must ba Mda to
tha structura and adminlatratlon of tha Stafford prograji. In
particular, tha Dapartmnt noada to:

do a battar job of approving and sonitoring tha achoola that
ara alloMd to partlclpata in tha programs « and

asaura that data ayatasui ara craatad that will acraan out
Inallglbla studanta bafora thay racaiva guarantaad loans.

And working togathar, tha Dapartmnt and tha Congrasa naad tos

provlda battar Incantivaa for landara and guaranty aganclaa
to aaauna part of tha raaponaibilltiaa for pravantlng
dafaults# and

raquira guaranty aganclaa to aaintain adaquata raaarvaa and
avoid potantlal conflicts of Intaraat to battar anaura thalr
financial stability*

Changaa such «a thaaa could raduca accass aMawhat, in particular
to atudanta anrolling in cartain vocational and trada achoola. on
balanca, wa baliava thia riak la an accaptabla prica to pay for
asauring tha financial intagrity of tha atudant aid prograsa. But
tha Congraaa and tha administration will hava to b# aanaitiva to
■inlBising any obvioua advaraa conaaquancaa aa raforsia ara
iaplaaantad.

I would lika to diacuaa aix kay axaas which ralata to thaaa
potantlal changaa for furthar ii^roving program intagrity« Thmmm
araaa ara ahown in figura a* Thay focua priMrily on davaloping
mya to atrangthan tha front and of tha loan procaaa by incraaaing

ERIC I

301

cliifAult pravmtlon efforts, rathr than is^rovlng post default
actlvitiM.

Fiffura 2: Ar^mn fo r Further lOTrovlnQ Prwrttw inteqEltv

o Approving achoois

o Reducing borrower abuse

o Increasing lenders* risk

o Preventing conflicts of Interest

o Focusing on default prevention

o setting reserve requlr^Mnts

Proeedur^ii for Detf rminina School Eligibility
fi ^i f he G overnment and Students at Risk

The Department should establish better standards and guidelines
Cor screening schools that want to participate In student financial
aid prograes. These criteria could consist of outcoae i»easur«ents
such AS student c<»pletlon and plac«Bent rates. The Department
also needs to establish a better systew for aonitorlng schools that
currently participate.

Many student -borrowers have attended schools that have not
provided then with a quality education; some se«« to exist
primarily to take advantage of the "cash cow" provided by the
govemnent. Students attending such schools suffer at least two
consequences i (1) they receive little or no training, and (2) they
incur student loan debt they cannot repay because they lack the
skills needed to become gainfully alloyed. Such schools also
expose students and the federal govemwnt unnecessarily to risk of
financial loss*

The Department's process for Approving schools Is not effective in
identifying these schools. The process relies heavily on actions
taken by organisations such as state licensing agencies and private

ERIC

BEST copy AVmASLE

Mcraditiiig «9«iiciM. UnfortiiMt«ly^ vi^vrlmc* mtuam tliat th«s«
oirganizAtlora Havw th«ir own go«lt and obj^ctivM. «nd do not
McassArily Act in th* qovmrtmmnt^u intorMt.

Tti« MpartMntr houmyt, i» thm ultlmtv 9At«kMp#r of f*d«r«l
•tttdoot «ld pro9rAU. M auch^ it riMds to play a soro activo
rolo in scrMning schooli to roduco tho •j^sum to f inanciftl risk
to tho gov^rnJMnt and studonta. In Ai^roving achoolff initially and
Bonitoring •chool* curnntly participating, it should ansuro that
acKoola an financially aound and adainiatrativaly capabla of
providing tha aducation that thay advartiaa. To aaaiat tha
Daj^rtaant in playing a oora activa gatakaopar rola, wo ara
currant ly axaaining tha atandarda or guidalinaa that ccmld torn
davalopad and uaad by tha Dapartsant to avaXuata achoola w)ra
cloaaly*

ffifpayt^iant^ Loan Data Baaa Wot Fnllv
Oaad In Prawntino Borrowara* Abuaaa

Tha DapartMnt ahould axpadite tha davalopBont of ita now atudant
loan data ayataa to mora of factivaly protact tha integrity of tha
Stafford prograa. Thia ayataa ia crucial in providing
dapartJMntal officiala part of tha information thay naad to prmv9nt
atttdant-borrowara froa abuaaa auch aa (1) axcaading atatutory loan
liaita and (2) racaiving additional ioana whan thay ara alraady in
dafault.

Tha Dapartaant*a currant atudant loan data baaa haa not baan
af factiva in providing information which could ba uaad to pravant
atudant borrowara froa abuaing tha loan prograa* Abuaaa hava
occurrad, in part, bacauaa tha data baaa waa not daaignad to halp
guaranty agmncimB and thair landara varify borrowar aligibiiity^

ERLC

303

Xn th« Cpnflr^M pnivli^ tlMi MpartMitt th« autterity to

diwoi^ .^o ItatioMl Sttttfmt Lom Mt« SystM. Such a ayiitra could
bm us«d to ttt«l9t lomiors asid gu«r«nty ayoncloi in guarding
against borroiwir ainiao. Howtvor, until 1989 tho Congroaa
proMbitod tha uaa of thia ayatM to varify borrowar aligibility
b^fora loan aiH^roval*

Tha adainiatration waa raluctant to fund tha daaign of tha naw
ayatOM until tha raatriction waa liftad. Wia OapartMnt nm plana
to ccwuplata davalopaant of tha ayataa in lata 1993. Wa hopa tha
OapartMnt Mata ita daadlina*

l^mn^rm Hmyf JA^^^m Ine^ntiva
tfi Pravan t^ Dafaulta

Altamativaa ahould ba davalopad that would ancouraga »ora dafault
pravantlon afforta by landara. Such changaa i«Mild ancouraga
landara to pay aora attantion to tha )tinda of achoola thair
borroMora attand and tha rapayMAt practicaa of atudanta*

Landara ganarally incur vary littia financial rtak for borroi#ara
who dafault on thair loana aa long aa landara adhara to tha
Dapart»ant*a collaction procaduraa. Thaaa procaduraa— callad "dua
diliganca-— aat apacific ti»a frama for lamlara to initiata
talaphona calla and aand lattara to atudanta who ara dalinquant on
thair loana.

Tha collaction raquir^anta, in »any caaaa, can ba a pro forM
procaaa bacauaa tha talaphona calla and lattara aay ba aaaily
racordad by ctmputrnt aoftwara. iThan a landar aubalta ita dafault
claim docu»anting that dua diliganca was parfor»ad, it rMaivaa
100 parcant of tha principal arcunt and accrued intaraat on tha
loan. Tharafora, landara ara aubjact to vary littia riafc in
Mking atudant loana.

ERIC

804

thm DvpartMnt has proposed two lagislAtiv* cliangA* in its fiwal
ymmx 1993 budget rvquwt that wuld raqain iai^an to aaauM morm
accountabiiity and risk for tha loans thay «aka. Thasa proposaXa

»#DUld

Mquira that landars |Krovids twrrowars with graduatad
rapaymant options* This *iouid parsit borrowsra^ for axavla^
to pay only intarast during thair first 4 yaara of loan
rapayvant and dafar loan principal rapaynanta during that
pariod.

Raduca landars' spacial allowanca (intarast suJOsidy) payvanta
by 0.29 parcant if thay hava dafault rataa of 20 parcant or
Bora during a fiacal yaar.

Va baliava that tha Oapartmant *a proposal has mrit, and parallala
our pravloualy raportad concams that landars hava littla to loaa
ifhan thair guarantaad loana dafault. Tha Dapartsanfa prc^aala
ara diractad toward gatting Mra accountability for landara with
high dafault rataa. Our pravioua auggastion, although diffarant
fro« tha DapartMnt*a, would hava landars racaiving lass than a
100 parcant guarantaa on thair loana so that thay would shara in
tha risk of thair dafaultad loans.

Guarantaad Studan^ Jjym^ Qpa»tJl<?fff
Sublact to Conflict of fnti^r^ata

Tha OapartMnt ahouXd i^alop atandarda of conduct and
raquiraaants for saparation of dutias aaong guaranty aganciaa,
landars, and loan aarvicing organisations. Thaaa ara nmw&md to
avoid potantial lossaa frM conflict of intarasts^ aa wall as to
Is^rova tha cradibility and intagrity of tha Stafford prograa.
Tha Dapartaant aakad tha Congraaa for tha authority to iaaua auch
atandarda in ita 1993 tntdgat raquaat. Va ancouraga tha Congraaa to
giva tha Dapartjaant thia authority.

o 3 :)

ERIC

Otsaranty a^nclM* actlvltiai and tlMilr nlatloMhip* with lamton
and loan ■•rvlcara hava raaultad in lava tl»n arw langtb
tranaactlena, ralalng varloaa quaatlona atMHit poaalbla conflict of
Intaraat. Guaranty aganclaa parton a ■ajor function aa tha
alMlaaan In Um Stafford pro^raa. Thay ara auj^aad to anauxa
that landara tiava proparly jairauad loana for collaction bafoxa thay
fila dafattlt claiaa.

Howavar, aoaa guaranty a^anclaa alao oparata thair own loan
aarviclng oparatloni. in auch arrangoanta, tha afanciaa can ba
in tha poaltion of baing both tha guarantor and landar for tha
aaaa loan. Should auch a loan go into dafault, tha aganciaa «iat
datarvina whathar tha corract loan collaction procaduraa *#ara
followad* Quito obvioualy, in thaaa Inatancaa* tha aganciaa hava a
conflict of intaraatar »inca thay ara avaluating thair own loan
aarvlcing actlvitiaa. Tharafora, wa baliava that guaranty
aganciaa ahould ba pravantad froa aarvlcing loana that thay
guarantaa to avoid poaaibla unnacaaaary riaka with apparant
conflict of intaraata-

"^'^^intv ft««"gi«« Laefc Incantivaa
ty Pyvnt DafMlta

Undar currant law, guaranty aganciaa hava a financial incantiva to
allow dalinguant borrowara to dafault. Thay typically racaiva 100
parcant rainauranca for dafault clai«a p*id to thair laiwJara^ and
can than ratain op to n pwant of funda aul^aquantly collactad
fro* dafaultad borrowara. wa baliava that tha proviaion allowing
guaranty aganciaa to haap up to 35 porcant of dafault collactiona
ahould ba rapaalad in ordar to ra»va thla incantiva.

Xnataad tha collaction raaponaibility would ba ahiftad to tha
oapartMnt* Tha ahift will allow tha fodaral govamaant to kaap
all of tha procaada. JUao, It ahould anhanca collactiona bacauaa
tha DapartMnt poaaaaaaa aora collaction toola than tha aganciaa in

trying to convlnc« borromrv to r«pay# such at IRS incosa tax
refund offsets ami fadaral mi^loymm wag* garnlahsanta.

In addition, tha program should ba railjnicturad to provlda
financial Incantlvaa that ancouraga »ora guaranty agancy dafault
pravantlon actlvltlaa. Although guaranty aganclaa Incur aoM coata
whan dafaulta raach cartaln thraaholdaf thay ara financially
rat^ardad priMrily aftar dallnquant loana dafault and dafaultad
borrowara aubaaquantly uka paynanta on thalr loana. Inataad
aganclaa should ba rawardad mra for kaaping dallnquant borromrs
friM dafault ing. Albait tha aganclaa* hava a primary function of
aaaisting landars in pravanting dafaulta— aganclaa hava savaral
chMcaa at dafault pravant ion --thay ara givan littla ravard if thay
mrm auccaaaful*

ftp R>oulya«fntp foy C^frantv Agsnclas

Tha Dapartoant should astabliah Blnimun rasarva lavals for
guaranty aganclaa. Uhdar praaant atatutory raquirasanta^ tha
DapartMnt la not liabla for paying landara' claiu on dafaultad
loana whan guaranty aganclaa bacMa inaolvant. HoHmvmr, tha
atatuta authorisaa tha Dapartaant to taka varioua iagal ACtiona,
including tha pAyaant of clalM, Tha Oapartaant haa inaorad tha
paymant of landara' clalM in tha ona inatanea «#han a guaranty
agency did fail- -tha Hlghar Education Aaaiatanca foundation (HEAT)
which failad In 1990. Tha DapartMnt a«y incur nora than tha 130
Billion in coata aa a raault of tha agrawanta raachad to raaolva
tha failura of HSAF. Aa a practical »attar/ thia l« liJialy to
happan again if othar aganclaa gat into financial troubla-

no fadaral raquiraaanta axiat for financial zmwmrvm lavala that
guaranty aganclaa ahould Mlntain, potentially incraaaing fadaral
axpoaura to program loaaaa. failura to hava auch raquiraaanta
contributad to tha KCAfa collapaa. in ita 1993 budgat raquaat.

307

tiM V^mrtmmnt has propose that th« Congr«»» give it th» authority
to r#qwir« cortain ainima raisrvo lovoI» for guaranty aganciaa,
at wall aa allowing it to tarminata ita agroM^nt with a guaranty
agancy if tha raaarva laval ia too low. Wa aupport thia propoaal-

Stafford loana giva aliglbla atudanta accaaa to low-coat loana to
furthar thalr poataacondary education* Tha OapartMnt of
Education ia raaponaibla for adainiatrating tha program to anaura
congraaaional objactivaa ara baing attained aa wall aa protecting
the federal government from any undue financial riaka or
vulnerabilitiea- Aa auch, the Department auat enaure that (1)
participating achoola krovide an education that leada to gainful
employment, (3) only eligible atudenta be given federal aid, and
(3) the lendara and guaranty aganciaa ahara more in the riaka
aaaociated with the program.

Many of the vulnerabilitiea in the federal atudent aid programa,
including thoae we diacuaaed today, put the government at riaJt-
90M of theae wealtneaaaa are related to the Department of
Education* a admlnlatration of the programa, othere can be traced to
proviaiona of the Higher Education Act* The adminiatration ia
propoaing a aeriea of legialative changea that, if enacted, ahouid
addreaa many of the program's ahortcominga.

ee believe that our recoamendationa and auggeatlona will provide
the Congreaa and the Department the ii^tua for correcting many of
the deflcienciea in the Stafford program, and lead to more
efficient and effective delivery of loana to eligible atudenta.

Mr- Chairman, that concludea my atatement* I would be happy to
answer any quaationa that you or the other Subcommittef* Meabera
may have*

ERIC

308

ATTACWIElfT ATTACIOfEffT

S^Eqr^ GAQ REPORTS <» H^CHfift EDUCATlOii ISSUES
fSlHCE

atadsnt LffMaLi — Charactgnatlcg of D#faulted B orrowrB In the
Stafford Studant Lcyan Proffraa (GAO/HRD-9l-82fiR, Apr. 36, 1991).

ElgXiM SlMdml hWnil M— d for aattar Cont rola Ovar Loan.

Racoyarftd Frtm eioaad Schoola CGAO/KRO-91-70, Mar, 37, 1991),

Stafford Studant Loana: Million of Dollara m Loiina Awarded to
InallQlbla Bogrowaya {GAO/ZlfTEC-91*7, Oac. 13, 1990).

Cradit Kanaawnt: yidaapra^a Loan Orioination Probl aaa Raoortad
(QAO/AraD-91-7, »ov. 9, 1990),

gttflliatWtf atttdtnt LMMJ Prof Ita of saeond^^ Markat Landara

vary Hi^aly {GAO/iaa)-90-130BRr Sapt. 2Bf 1990)*

attttitnt torn LtndtgiS mfora^tlon on tha Activ^t;4M of tha Fii^yt

Indapfndant Tmat CMpaf^y {QAO/HRD*90*183FS, Sapt. 2S, 1990).

SghWi teCrtflmtiOT? JUrtlvl^laff of fiavan A OTnci^a That Accradit

Propria^ayy ^hoola {GAQ/HRD-90-179BR, Sapt, 13. 1990).

Dafattltad Studant Loana i A na^vaia of Dafaultad Borrwara at
schools Ageraditad bv s^v^p *gy^gtti (aAO/HRD-90-178F$, Sapt. 13,
1990) .

CQvarnmant-SPonaorad Entaroriaaai Tha GovamMnt'p pup oaura to

SiMi (GAO/OGD*90-97^ Aug. 15, 1990).

S^rotfWnm Stlrttnt LMnat Laalalativa ghanoaa Hava aharelv

Raducad Lean YiTlMIt {OAO/KIID-90-149FS, Aug. 3, 1990),

Hiqhar Education: Oaoa in Paranta^ and atudanta' Knowladoa of
school coats and Fada^al Ai^ (GM)/PSNO-90-20BR, July 31, 1990).

ProalaiM Practical Privata Pfooraaa a^^rMn^mmina Studant Aid for
Hiohar EdiieAtiQft (aAO/PEMD-90-16, Juna 32, 1990),

CPniPAAtffttiti SU^nt LMnil Borrowars ftanafit but Coata to Tha«

and tha q^ ^vamaant Qrpw <QAO/»lO-90-8, Juna IS, 1990).

Crtdit HinWWWnti Datarioratino Credit Plrt.^rf EgPhniUtf

imortanca of OMR' a mna»-^int Pr^^r^ (QAO//Ana>*90-12, Apr. 16,
1990) ,

309

ATTACHXEWT ATTACMttliT

Buarant— d Studant Loaiwt c rsdlt Bur»au Raportinq Practice* bv
quitranrv AqmtM'.lmm and Landara CCAO/HW)-»0-71BH, Apr. 9. 1990).

Pall Orant;t; How tha Daparta ant 9t EdUCflt l on E B tiffifltW PrMgflm
Copf (GAO/HIU)-»0-73BB, F«l>. 31, 1990).

SupolaMint fi fitudant Leana; Who Ara tha Laroa^t LandgrB?

{GIW/l«P-90-72rS, Fab. 21, 1990).

Plnancial Intaorltv Act; Inadaouata Controla Raault in
"2f"""va FSi^al g;^r«^ '"™illio;il in I^a;;r <CAQ/^
10, Rov. 38, 1989.

a wpla—ftt^l Studant Loanai WhCLBo rrowa aiwj Who Dafaulta
(fllW)/HRD-90-33FS, Oct. 17, 1989).

Studant At h latia.! Homf Sehoola Maat PrOPQiad AcfldgmiC farfOgtMnCg
nmrZVlifu, aaSSl'^StS tQAO/MRP-89-157BR. Sapt. 11, 1989).

Ouarantaad Student Loan.i Comparlaona Of SlMla Stfltg 4nj
wSitta'Zta Culira«tv"5ancie» iGA0/HRP-69-9a, July U, 1989) .

Otiarantaad Studant L O «n.t Analvala of StudwnT Pafflult RfltM at
7.BQ0 pgStaS^SlSl.rv'^hS^la <OAO/HRD-B9-63BR, July S, 1989).

atudant AthlatMi In fofaatilon cn Thair Acad—ic PTfgiaOnCB
(O»0/1IRO-89~107P8, Nay 17, 1989).

Education laauaa (aAO/OCG-89-18TR, Hov. 1988).

n.<a«lt«d S f «d«n> Loanat Pralilnarv AnalYMil Of Staflgnt Lffttl)

Pall Oranf . who Hac a fva Tha« an tf Y^»t^ Would Laroar Grants Coat
{GJM>/K!tO-88-tOeBR, Juiw U, 1988).

ouarantaad studant u *»fiMt pota«»««.i Dafault and Coat RaductiPn
Qptiena (OM}/Bia>-88'52Blt, Jan. 7, 1988).

Oaarantaad Studant ^na» An alvaia ot tnauranca PrMi1<T«l rtltirflll^
t«f ftlMZnfrv aSSgiai {aM>/iaU)-88-16BR, Oct. 7, 1987).

«.»«f*ntaad Studant IiQini' l.aqif ^atiira and Raonlatorv Chtnotl
Si2£5d^n"Rad»""pagSl" coata Sapt. 30, 19»7).

Pafaulfd a^vi^T"" Privta Landar Collaction EttPrtl OtttB

Tpfdac^ata (aM>/fiia>-87-48, Aug. 20, 1987).

O !

V/ .

810

ATTACHXEHT ATTACKWIIIT

Stiiid^nt Aid* rAMitelai to«i«f^iic« to SchQlarghip Athltf a
(GM/iIIID-87-78DR, My IX, IWli .

rfnf^eitiff Hiytiar EdueatilQni EMmlM CoimrinQ Saiatiliq Md

P«>PMil StiH ia^t^ Aid Proara— («O/HTO-a7-$0FS, April 22. 1987).

D^faulfd Stud»tit LCMinat Quarantv Acfnef^ CQll>ctiPn Practice
and Procadiw {GAO/lim>-86-lX4BR, July 17, 1986).

ERLC

311

Chairman Ford. Thai^ you very much. This lanel has raised
more questions than any we^ve h^ yet. That leaves me wondering
exactly what you are saying. The three of you make the same kind
of noises with the same kind of language, but they're not coming
through as being tuned, not playing from the same sheet of music.
The one thing we do lack here is specifics.

I think well start with you, Mr. Sanders. If the other ^ntlemen
want to chip in to agree or disagree or help, then th&t will be fine.

Mr. San^rs, in 3iis general recommendation, which was con-
curred by at least one of the other gentlemen, that the States share
in the role of guarantee agenQr, that has a kernel of familiarity to
us and has had some app«d. We've never been able to quite figure
out how to get it done. . . ^ , ,

Your language says, "We would also require States with school
default rates that exceed 20 pen^nt to pay a share of the default
costs." Do you mean a cumulative total of 20 percent of all the stu-
dent loans in that State, or do you do ii by institution?

Mr. Sanders. No, it would be cumulative total for the entire
State, as I understand it, Mr. Chairman.

Chairman Ford. How many States now have a cumulative total
default rate in excess of 20 percent?

Mr. Sanders. I don't know the answer to that, but I suspect
someone here on staff does.

Six, Mr. Chairman.

Chairman Ford. Only six? Then it would seem that 20 percent is
a fairly mild cutoff point, wouldn't it— if we're going to do some-
thing drastic and we onlv hit six States with it. What are the six
States; do you have them?

Mr. Sand^. Yes, Mr. Chairman.

Chairman Ford. I'm not volunteering my State, but I m wonder-
ing how you come up with a standard that only hits six States after
ufiMig strong language to deecribe the seriousn^ of this problem.

Mr. Sanders. Just a moment, and we'll have the six States for
you. , ,

Chairman Ford. Well, let's go on to the second part of that para-
graph. "We also are proposing to reduce special allowance pay-
ments by .25 percent to lenders with def ault rates exceeding 20 per-
cent." dan we expwt that when your legislation comes up, that it s
goit^g to include language to do this?

Mr. Sanders, Yes, it wiU, Mr. Chairman.

Chairman Ford. And will that be accompanied by some indica-
tion to uo of what the impact on these weak States— I'm aasunung
the word weak is approprmte— if there are only six in that status
in the whole country? How much more shock can their system take
before we shut them down? i.

If you can't answer that now, I m not surprised, but I think when
we get to l^islation, we would want to know that.

Mr. Binders. I would be happy to give you that additional analy-
sis, Mr. Chairman. Of course, this would affect lenders in even
other than the six States. . , . , ^

Chairman Ford. God forbid that one of the States-lets hope
that none of the States that you've got on your hit list include the
chairman of the Appropriations Committees on either side of the
Capitol. I'm sure you re as sensitive to that as we are.

312

While you're »»ttiiig the six States— do you have them yet?
Mr, Sa2WBR8< r^otyet.

Chairman Ford* While Uiey're gettii^ them, let's go to the next
one. On pa^ 6, you say, 'Through enhanced reviews of initial pro-
gram eli^bility and inmiovements in the process for terminating
participatiun in the GSl. program, we can ensure that schools itmt
are designed for the purpose of bilking the government and
Uie taxpayer will be elixninated from our student aid prtqnrams.''
What does a school designed to bilk the taxpayers look like?

Mr. Sanhsss. Mr. Chairman, it would be a sdiool who's primary
interest is in reaving the F^eral financial aid and not in provio-
ing any educational or adding any kind of educational value to the
student. It would be de^|^ra spedficaUy for imrticiimtion in the
prnrram and not to provide any benefits to the students.

dhiairman Ford. I doubt, Ted, that you would find anybody in
this a)untry, even Uie most radical to the right or to the left, that
would disagree with that proposition, but I oon't know how we de-
scribe one of th<^ kind of schools in legislatii^ language.

Mr. Sanders. I don't know how we d»K:ribe them, necessarily, in
legislative language, but I think we can draw a good bit on the
work Uiat the inspector general has done with many of the schools
that have been problems in this area. Look specifically at their
characteristics, Mr. Chairman

Chairman Ford. Well, the ii^pector general looked at 12 schools
in the proprietary area, out of some 5,(MK); that^s not a very big
sample. Intuitively, I suppo€^, I could pick 12 schools that are going
to give you very good mults and 12 schools that aren't goii^ to
give jrou very good results, but we're goii^ to need something more
to write a definition that's going to hold up for five minutm in the
court. We iust can't intuitively decide what is and what is not a
good school.

Mr. Sakdkrs. I tiiink, Mr. Chairman, that we could look to the
participation rates, completion rates, and placement rates as,
maybe, one way of getting some insight and mme help in that par-
ticular area. It is

Chairman Ford. Would you suggest that we do that also with
community colleges?

Mr. Sakders. 1 would assume, Mr. Chairman, if we're going to
apply these standards, we would apply them generally, not specific
caUy to any specific set of institutions.

Qiairman Ford. To all postaecondary education.

Mr. Sanders* Yes.

Chairman Ford. Mr. Thomas, on p^ 3 of your statement you
say, ''Of these 10 proprietary schools OIG reviews have uncovered
regulatory violations at 6 of them. What have you done about
that?

Mr. THOBiAS. I'm sorry, I didn't hear the last part of the ques-
tion, sir.

Chairman Ford. You said that you found regulatory violations at
6 of the 10 schools examined. What have you done about that?
You're the inspector ^neral.

Mr. TkiOBfAS. Yes, mr. What we've done, Mr. Chairman, as part of
the audits and our investigations and our inspections of these insti-
tutions—of the top five proprietary schools, the largest ones that

313

received financial assistance, four of them, sometime during or
shortly after the audit or investigation was ^me, ceased to get stu-
dent aid at all. Some of those went out cf the student aid business
of their own volition, based upon prdblems that we found. And
oUiers went out when Uie department took action on them.

Chairman Ford. All right You go on to say, "Our OIG investiga-
tion have uncovered evidence of criminal activity." What did you
do about that?

Mr. Thomas. We are in the process or have already prosecuted
many of them.

Chainnan Foao. Ck>uld ^ou give us some detail on what kind of
criminal offenses were hein^ committed and what the Justice De-
partment has done, if anythmg, about them?

Mr. Thobias. Yes, sir. We would be happy to provide a whole
litany of that

Chairman Foed. We don't want, in any way, to prejudice the Jus-
tice Department's prc»ecution of any crimimds, but we would like
to know what does that mean, what kind of criminal activity are
we t' ffUgi^'g about.

Someplace later— isn't it your statement— when you talked about
someboobr at a university cheating on the PLUS fowi money, pu^
ting it in their own pocket by using phony identification?

Mr. Thomas. Yes, sir. That's in my statement also.

Chairman Ford. TTiat wasn't a proprietary school, that was a
univeroity.

Mr. Thomas. As I recall, it was.

Chairman Ford. Was it a public or a private university; can you
remember?

Mr. Thomas. No, sir. I don't remember the specifics. I'll be happy
to get it for the record. , n i.

Uiairman Ford. Well, one final qu^on and then I will have to
give up my time for the other members here. I noted that one of
you came down hard with language sayiM, "These schools," and it
was during a discussion of proprietary schools, "are corporations.
The worf^'corporation" took on a kind of life that indicated that-
like people in my district believe, a corporation is oresumptively
bad. There was a time when I thought that, until I became a
lawyer and started forming them for people. When I wrote bylaws,
ItliGy wGiro ^ooci«

AU the private collies are corporations, are they not? Do you
know of any that are not?

Mr. Thomas. I don't know about all of them or even any of them,
but I would assure that many are, yes. , ^

Chairman Ford, Well, when you throw the word around «iat
there's something inherency suspect about being a corporation,
you've got to recognize that Harvard's the oldest one in the busi-
ness. And they aren't goin^ to take too kindly to the idea that their
corporate status is something to be looked at.

What, beyond the fact that they're corporations, were you get-
ting at? You said that no one is personal^ liable for the mishan-
dling of student aid because they're corporations. ,

Rfo. Thobias. One of the things that we foimd, Mr. Chairman, m
many of the schoob that we had done audits or investigations on
where we have found, for example, unpaid refunds back to lenders

314

for students who have either xitA a>mpletad their school, dropped
out, or some other reason, or the school went out of bumness, is
that the corporate structure is just a with no resources at all
from which to mal^ these i^iymente back And therefore

Chainnan Ford. But the way you made yvnir statement, ^ou
pointed out, quite accurately, that in the status of a corpOTation,
the individusLi owners of that corporation are not individually
liable for things unl^ by statute.

We make t^m liable. In Uie Internal Revenue Co<te, we make
the individual officers of a corporation responsible notwithstanding
the status of the corporation for failure to withhold income tax, for
example, on employees, lliat becomes a persoi^ liability that cor-
porate status doem't protect you from.

So it is prasible to r^h that personal liability. And is it your
sugi^stion or is it implied here that we should be considering a
way to make the officers of a corporation personally liable for the
conduct of their i^nte in handling Federal money, as we do with
the Internal Revenue Code?

Mr. Thobias. That is our proposal, yes, sir.

Chairman Ford. And would that extend to all corporations in the
education business?

Mr* Thobias. Yes» sir. I don't see any reason why it would not.

Chairman Fom You see^ there are profit-making corporations
and nonprofit corporations, and sometimes we get confiiiBed. You
just described a corporation that^s a nonprofit corporation because
it's broke. But we talk about a nonprofit corporation as a 501-C3
tax exempt operation; it is not designed to make a profit.

All the profit-making corporations— and tilie best example is the
Big Thr^ automakers who are turning in record losses now, with
all of theirgenius, now at about $2 biUion for the first quarter of
this year. They're not nonprofit corporations even thoi^^h they ara
nonprofit at the moment.

And BO what I want to know from you is if you feel that this cor-
porate veil ought to be pierced wherever we have a corporate
stetus that insulates the responsible managers of that business
from answering to the department.

Mr. Thomas. The point that we were trying to make, Mr. Chair-
man, is that we have found, in the cases that weVe been involved
in, many insteinces where the individual ownere have taken a lot of
monev of the institutions —and th^ are for-pnrfit proprietory
schools that we have had the opportunity of looking at, particular*

ly-

Chairman Fobd. Maybe they Iranied something from the savings
and loan people. We've discovered hundreds of bUlions of dollars of
that kind of conduct in the savings and loan industry, and now it
appears that some cf it's sluming up in banks. The question people
now ask is: ''How did that happen?

While I'm not on a banking committee and thank God for that—
I discus it with my friends. I ask, 'How would you anticipate this
kind of freebooting going on in institutions tihat used to have con-
servative management? How would you anticipate, as an raecutive
of a savings and loan, people borrowing a ^i^ry large amount of
money to take a flyer in the real estate market and what appeared

315

to be a hot market, which was really falling apart, and then not
being able to pay the money back?"

lliese thmgs went on all over. Right now, the administration and
the banking committees in both Hou^ are trying to figure out
how to keep this from happening again.

You're addng this committee to go into an area that gets us all
tangled up. I believe it was Mr. &uiders' testimony, that stated,
"One of the problems I have at the department is that they don't
have enough number^runchers over there," people whose specialty
is finance and financial institutions.

We don't have number-crunchers, either; we have pn^pram
people. And if we're going to do something like that, I would sug-
gMt to all three of you that we need more help than just a general-
Bed identification of a problem. If it's a problem as you perceive it,
then we need some basis to establish that it's a problem that's
broke and it needs fixed. And then we need your help to tell us
how to fix it.

Thank you very much.

Mr. Thomas. We'll be happy to work with you, Mr. Chairman, on
doing that.
Chairman Ford. Mr, Coleman?

Mr. Coleman. You have given us so much information this
morning that it's hard to formulate a series of questions to specifi-
cally get at a lot of the a)ncems that we have. And I would ask
that you make yourself available to members, or at least, certainly,
to the Chairman and myself, and others who might want to join m
a sort of ad hoc meetings, after this hearing, if we run out of time.

First of all, Mr. Thomas, you have a whole host of recommenda-
tions, investigations, and so forth, and some of them I want to go
through. And I agree with you that accreditation is the main issue
in tha reauthomation. If we don't have a strong accreditation
process, we allow fly-by-nights, we allow institutions who do not
provide quality education, we basically open up the proces for any;
body that wants to, to take advantage of it. If we don't have a good
accreditation policy. I assume you conclude and agree with that
statement.

Mr- Thomas. Yes, sir.

Mr. Coleman. In formulating a new arcreditation policy, we get
into this sticky wicket of how far the Federal Government should
go in the determination of atademic freedoms and the desire for ac-
countability. And, Mr. Sanders, this is where talking about things
is one thing, getting specific is another. And that's what we need,
specificity. And I hope that you will be able to work vrith specific
language so that we will be able to carry out these reconunenda-
tions being made— which I think you support— in time to incorpo-
rate them and have a good look at them so we are sure that we re
doing the right thing.

But I'm a little concerned that perhaps this problem has been
going on for a number of years and hasn't been adeq|^uatel^ ad-
dressed. And I wonder if it couldn't be addressed administratively.
Your first recommendation, Mr. Thomas, is very telling.

And it simply states that, "Accrediting a^ncies should be re-
quired to develop and insistently apply specific criteria for evalu-
ating institutional quality." Well, excuse me, I thought that's what

316

acxreditation was all about* And you're telling me we don't have
that now?

Mr. Thomas. That's my understanding, Mr, Coleman.
Mr. Coleman. 1b that your (inclusion?

Mr. Thomas. Yes, sir. This recommendation is based upon the
work that we have done and the indications that we have from our
analysis.

Mr. Coleman. Mr« Sanders, do you have a difFerent view of the
accreditation standanb that the dejmrtment has currently?

Mr. Sandebs. Well, a somewhat different view, Mr. Coleman. I
mean, I don't think I would paint with the same brush all the cred-
iting bodies and their focus and the quality with which they carry
out their standards in assuring quality. But yes, there are problems
in a uniformp high level of performance of accrediting bodies, and
^es, there are ^ingB that we can do administratively that would
improve as we exercise our oversight through the Secretary's recog-
nition process. And we are doing those things administratively at
the moment.

Y^t there are things that we ought to be looking at and thinking
about, potentially, from a legislative point of view. We have only
the two processes upon which we mxist rely: either the accrediting
bodies and their stamp of approval, or the State liceiuing process
which is equally mixed. There are not uniform levels of quality in
that proceffi, and we have no oversight over the State licensing
process. We must accept that. That's one of the reasons that we
come to you with proposals that would bring some incentive for im-
proved State performance.

Mr. Coleman. I understand that, but I'm getting Imck to what
the department, for a number of yesTB — and I know it may not
have been under your watch or, certainly, the current Secretary's
watch— but, in fact, we've had problems through the v^rs. And it
seems to me that you could have identifi^ theme problems and cre-
ated the r^nilatory framework so that you don t have to simplv
buy an accreditation agency's standards; they may come up with
them this week. And if they approve an institution, you h^ve to
certify them as a proper institution.

Well, it ^ms to me that there's been a lot of standing around
and waiting on this, and I'm not sure it needed legislation— I think
we're trying to close those gaps, but I would hope that it <n)uld be
done administratively in any event. This bill is not goii^ to become
a law next week; you could be a whole year, at least, before there is
something for the Preddent to ^gn.

In the meantime, there are literally thousands of students, mil-
lions of dollars going out the window, that you could tighten up in
this accreditation process. And I hope you do, and don't say, ''Well,
Congr^ hasn't done it yet" Because Congress is going to do some-
thing, but rd like to see you do something quickly ouring in the
procras.

Mr. Sandebs. Mr. Chairman, if I might, again, respond. I would
be happy to give you a more lengthy and detailed response, but we
have sent decisions back to the Secretary's Reci^nition Advisory
Committee for them to take a closer look at what it is that they
have done. We've asked them to take specific steps in lookii^ at

ERLC 3 j I

317

accrediting agencies that seem to have a disproportionate share of
schools that tiiey have accredited with high default rates.

We've brought tho^ accrediting bodies m, specifically, to laiii
about how we can jointly take steps that would improve even then-
work in accrediting schools. In the final analysis, thoi^h, we must
take-once we have recognized those bodies against the standards
for recognition promulgated by the Secretary-we w^^a«rept
their recommendation of institutions. We cannot quibble about
quality at that point with them. They either do or do not have that
accreditation. ^ . ,

Mr. Coleman. Well, let me ask you. one of abuses we ve seen is
branching, whei« an institution wUl open up a branch somewhere.
Do they need certification to do that, the branch?

Mr. Sanders, Yes, they do. And we've tightened thuigs there top.
Moving to require a 2 year period before they c»n become eUgibte
for student aid as a stand-alone. Yes, there has been a major prob-
lem with branching activity, and we've taken a number of steps to
try to address those problems. .

Mr. Coleman. One of the recommendations, again, by the inspec-
tor general, is to amend that Act so that it prohibits weak and fi-
nancially troubled institutions from participatiiig in Title iVprj
grams. Again, we get into that area of "weak ' m what way? Weak
L quali^? Aiid how do you gage that? Weak in personnel? Weak
on that folance sheet if it's a for-profit? Mr. Thomas, do you want

^^'iSI^^MAS. Yes, sir. There are two basic areas, Mr. Coleman,
that the department makes a judgement on. One is their financial
capacity to carry out, administer the program. And one is their a^
miStrative capability to carry out the prc^ram. And what were
saying is that those are the only two judgments that the depart-
ment makes in order to provide eligibility for an institution.
Mr. Coleman. Are we talking, now, about profit and not-lor-

profit as well?
Mr. Thomas. That's my understanding.

Mr. Coleman. All right. , ^ j a«j

Mr. Thomas. And so those are the judgmente that are made. And
what we're suggesting is that if the depsutment specific cnte-
ria that must be met, and that either a school meets it or it doesn t
meet it. And what we found in our review there wm that the de-
partment was letting into the program any schools that were mar-
^ in nature. And many of those schools went out of busing
within the first 1 or 2 years leaving a lot of studente high and dry,
and therefore leaving a lot of unpaid debts and broken dreams and

**^^L^AN. All right. Let me ask you, Mr. Sanders, ^ejj^"^
testimony last week from students and people who repr^ented stu-
dente in law suits involving a school that shuts down. Thf. ^'i^
had already taken out their loans and due to no fault of thetf own,
had chosen the wrong school to go to. Apparently, the department
doesn't really care what their experiences were, they consider them
and go after them like anybody else, even though they may not
have nad 2 days of education. * _* ,

Do you have any flexibility to determme whether or not a stu-
dent was caught in such a web? And to go after them seems some-

3.?2

47-088 0-« n

318

what unfair since they had no warning of the poor experience pre-
sented to them.

ASr. Sanoers. To my knowledge, Mr. Coleman, we do not have
latitude to tr^t students caught in that kind of situation different
from other stuttents who have defaulted on their loans. We do have
other provisions requiring teaching or try to assure that, indeed,
what they get is of value and is indeed delivered to them. But on
the side after such a situation has developed, to relieve them of
their responsibility having taken out the loan, no, we do not have.

Mr. CouEMAN. And are you recommending, Mr. Thmnas, that
there be a bonding authority; is that what you're recommending?

Mr. Thobias. Yes, sir. Could I add to the answer that Ted Sand-
ers mentioned?

The only exception that I know to what Deputy Secretary Sand-
ers siud is in thrae cases where it's clearly snown that fraud was
committedf that the student did not know about and was not a par-
ticipant int then it's my understanding that the department can re-
lieve that student of tlmt li^llity.

Mr, Coleman. Are they?

Mr. Thomas* It's my understanding that they are. This is not a
very widespread thing, of course, because you have to prove specific
fraud that exists there» that the student was not a party to and yet
the student wound up owii^ money.

Mr. Coleman* I know there are a lot of collea^es here today.
And I know that I've gone over our limit of five nunutes. I hope we
will be able to ^ around again. I have some other questions to ask
you at a later tune.

Mr. KiLDBS. [presiding] Thank 3^u.

We, in ei!ect, accredit the aonieditation agencies. What criteria
do we use in determining that they are r&ally ^^id and viable and
reputable accreditation agencies? What criteria does the depart-
ment use?

Mr. Sandebs. We have a i^fulatory structure that guides the
process, Mr. Chairman, rai^fing from the type of standards to uni-
form enforcement and so forth. AU of them intend to get at and
assure that quality is present in the decisions that the accrediting
bodies make.

The process, itself, involves a petition to the Swretary's Advisory
Committee, that staff analyzes the institution's petition against
those standards — which I would be happy to give you a copy of
those regulations if you would like — ^and then the determiimtion by
that advisory body and a recommendation to the Secretary, who
eventually makes the decision.

Mr* Kju>ee. How many were not recc^ized as valid or reputable
or reliable accreditation agencies last ^ear?

Mr. Sanders. In the last year, I beheve, maybe two or three peti-
tions were not approved,

Mr. KiLDES* Otit of how many was that?

Mr. Sakdebs. fm not sure that I ^ow a total, but I know the
paper work was a fairly substantial— out of 27.
Mr KiLDEE. Out of 27, 2 or 3 were turned down,
Mr. Sandess. Yes.

Mr KiLDEE. Just one other question and I'll defer to the other
members. Do you have any special suggestions as to how we deal

819

with proprietary schools that may serve a high-risk clientele, par-
ticularly in our larger cities. For example, a medical technology
school m a larger ci^ may actually be suppljring those who do
graduate qualified people to the medi(»l profession, but because
they admit a high-rwk dientele, there may oe a large default rate.
Do you have any special suggestions as to how we deal with schools
like that?

Mr. Sanders. That's been a very difficult dilemma for us even,
Mr. Chairman, as we've tried to frame the policies that we bring to
you, and reosnizing the relationship between even typ^ of stu-
dents and default rates and concentration of those students in
some institution. I do think, overall, though, that we hold to the
belief that the provision of quality education does increase the
probability of suct^s and, therefore, the ability to repay loans.

I think this is something that we've just got to work on: What
are the tolerable levels? I think maybe you have done that, as we
have, as we debated about where exactly to fix those acceptable
limits before we cut off a school in setting the limits on the 3 year
average before terminating a school's eligibility automatically.

Mr. KiLDEE. Thank you.

Mr. Gunderson? .

Mr. Gunderson. Thank you very much, Mr, Chairman.

Mr. Sanders, I'm going to follow up with this general comment
you just made in response to Mr. Kildee. What information can you
give us on the breakdown of the defaults as full-time students
versus jart-time, traditional versus nontraditional? What kind of
data do you have r^arding that as it affects the Guaranteed Stu-
dent Loan prt^H'am?

Mr. Sanders. If I might, Mr. Gunderson, let me defer to one of
my colleagues who knows the data.

May we put that data together and provide it to you? Apparently
staff does not have it at their fingertips either.

Mr. Gunderson. Okay. Do vou want us to submit the questions
specifically for the record so that you (»n follow up in that regard?

Mr. Sanders. That will be fme. We'll make sure you get the
data, either way.

Mr. Gunderson. Some of it will be interesting because we
haven't been able to find it anywhere. So if you've got it, you re
going to be a first.

Mr. Sanders. If we've got it, we'll make sure you get it.

Mr. Gunderson. All nght Let me follow up— we've been focus-
ing almost totally on the default rate and the pn^ram inte^ity of
the Guaranteed Student Loan program. What about PLUS and
SLS? Can you tell us anything about default rates or delinquency
r&tes on those two pn^prams? . .

Mr. Sanders. Again, if I might ask staff to help me out with the
answer to that question. ^ ,

The net default rate, Mr. Gunderson, for SLS is 6.9 percent, and
for PLUS, it's 2.5 percent. , r i o

Mr. Gundeh«)N. Can you give us the cost-effect of that default?

Mr. Sanders. Apparently not easily, Mr. Gunderson, if we might
supply that to you and the committee later.

Mr. Gunderson. Sure. Probably the biggest problem with your
present efforts at pn^am int^frity on the student loan program

320

and one of the miyor proposals that you have proposed for the
future is minimum courw length, presently and delayed-disburse*
ment*

Prawjntly, any first-time borrower has to wait 30 davs before
they receive that first payment in a Guaranteed Student Loan
prt^ram* You are now advocating that we establish a minimum
course length of 6 months or 600 houra as a condition of eligibility
for all student aid programs.

How do you mesJi one or either of thwe with summer school and
with campuses which have a small* 1 month interlude program be-
tween semesters, special studies that I know some campuses do? It
would seem to me that you would automatically disqualify all
summer school pn^grams.

Mr. Sanders. I don't think so, Mr* Gunderson, because when
we're talking about a course of instruction we are talking about
the entire rourse of in^ruction, not the component parts that
would make up that prc^ram.

I think srou'xe thinxing, prolrably, in terms of what many 4 year
institutions do in having a micro term, for example, between the
fall and spring semraters. That would be a r^rt of their course of
instruction, and so it would not be affected by — this would not set
the minimum length on each of the component i»rts for the entire
course of instrud;ion, which in this case might be a 4 year prc^am,

most probably. In terms of the

Mr. GuNDERSON. So your 600 hours means, in essence, a
degree

Mr. Sanders. No

Mr. GuNDERMN. You have to have a minimum of 600 hours

before you receive your

Mr. Sanders. You have to have a minimum of 600 hours

Mr. GuNOERSON. You're saying no, and your staffs saying yes.
Mr. Sanders. It would be either a degree or certificate. Any pro-
gram of instruction, it would be talking about the full program not
just component parts.
Mr. GuNDERSON. Okay, that's helpful.

Are you considering any kind of provision which would allow an
acceleration of that initial (^bursement during summer school?
Mr. Sanders. Not to my knowledge.

Mr. Gunderson. Is there any reason you would not? Let me give
^ou an example, because my questioning, as you have been listen-
mg, focuses significantly on the nontraditional. As of this Friday,
we b^in laying off the first of 4,(K)0 people in the closing of a Unir-
oval tire company in my district, of which 800 to 1200 are sched-
uled to go back to school for further training, of which every one
will be an independent student, of which many will qualify for the
first time for guaranteed student loans.

If thev he^sat summer school, inmiediately, as I think most of us
would like them to do, you are telling them they ^t no assistance.

Mr. Sanders. No. We're not tellin|^ them that tney get no assist-
ance. It's that the timing with which the disbursement is made
does not say that they are not eligible for that 60-day period.

Mr. Gunderson. I understand that. But the realitv is that unless
the school is going to forward-fund their summer school, they have
no option — or else you're asking them to forward-fund when they

ERLC

321

are using any money from unemployment or elsewhere that they
have simply to sustain their family. The reality of the situation is
that for summer school, that 3(Way delay doesn't work for the non-
traditional student. And I think we need to look at some kind of a
modification in those unique circumstances.
Mr. Sandebs. Okay.

Mr. GuNDEHSON. Finally, let me go to Mr. Thompson. You have
made a statement on page 4 of your testimony that really jumped
out at me, where you say, "The Congress and the administration
will have to be sensitive to minimising any obvious adverse conse-
quents as reforms are implemented." What do you mean by tiiat?

Mr. Thompson. Well, I'm going through a list of proproals de-
signed, basically, to deal at the front end. We've talked about ac-
creditation here this morning. If we tighten up on the accreditation
standards, our hope is that we will be able to keep out of Uie pro-
gram those schoofe that aren't providing value for money. But we
have to be sensitive to the fact that any broad attempt to do that is
likely to also exclude some that maybe we didn't want to e^lyde.
We had the issue of the medical technology school that Mr. Kiidee
talked ;^ut. , .

So we have to be sensitive to the fact that, as we try to exclude
the bad apples, that we don't have too many good apples that get
caught up m the process. And I think that, inevitably, when you
make these kind of changes, you don't know with <»rt8inty the
exact effect, and you have to make your best guess and then moni-
tor what's happenii^.

Mr. GUNDEBSON. I don't think any of us disagrees with you in
that goal. The difficulty is finding the way of achieving that, and I
gue» we're going to have to ask you to submit some speanc rerom-
mendations ui that rward, that we can consider as we try to deal
with this whole area ofpn«ram integrity.

Thank you, Mr. Chairman.

Chairman Ford, [presiding] Mr, Reed?

Mr. Rked. I think it's Mr. Andrews' turn.

Qiairman Ford. Mr. Andrews?

Mr. Andrews. Thank you Mr. Reed and Mr. Chairman.

Gentlemen, I'm not sure who can answer this question, but 1
would be interested in the factual information. If I went back to
my district and told people that almost half the money spent m the
student loan pro«ram isn't being spent on student loans, that it s
being spend on <tefault8 of existing loans and administrative costs,
they would be outraged by that

And my question is: What percentage— you cite stetistics that 44
percent of the program cost now is defaulted loans, and that s
about $2.5 billion a year. Of that ^.5 billion a year, what percent-
age are we collecting? What percentage are we going to judgement
to and getting bade from the people who haven't i»id the loans?

Mr. &INDEB8. Staff informs me that it's something like 80 per-
cent, Mr. Andrews. ^ . * . = u n-

Mr. Andrews. So we're collecting 80 percent of that $2.5 buhon

dollars?

Mr. Sanders. Eventually, over time. i. r

Mr Andrews, Over time. What's the average length of J^"ne
before we collect it? Let's assume someone defaults m 1990 a

ERIC

322

$10,000 principle obligation. How much of that are we likely to get
back and when?

Mr. Sanders. I don't know the answer, and apparently staff does
not. But if we can put the data available together to give you, of
what the norm would look like, I'd be happy to do that, Mr. An-
drews.

Mr. Andrews. With the Chairman's indulgence, I would like to
see that.

Secondly, what is the dei»rtment's response or what actions
have you taken with respect to combining your efforts with that of
the Internal Revenue Service? I suspect we've all read anecdotal
accounts of the same people who are not paying these loans back
are also reseivii^ Federal income tax refunds, in some cases. What
are we doing to withhold those Federal income tax refunds from
people who haven't paid their loans l»ck?

Mr. Sandebs. We are, indeed, doing that and doing it very suc-
cessfully, with the help of the IBS, to those loans that have come
Iwck to the Federal Government. We do, eventually, with their as-
sistance, go through a proc^ of offset against their returns.

Mr. Andrews. How much, on an annual basis, are we collecting
from that method?

Mr. Sanders. As much as $300 million a year.

Mr. Andrews. Okay. Finally, for Mr. tiiomison, on page 4 of
your t^mony you make recommendation recommending Uiat we
explore how we can provide better incentives to give the guarantor
and/or the lender a financial stake in avoiding default. What spe-
cifically would you suggest we take a look at? Should there be li-
ability for the guarantor? Should there be redu<^ levels of public
guarantee? What exactly should we do to give the lending agencies,
guaranteed State agencies more of a stake in avoiding defauJt?

Mr. Thomas. Well, first, we've suggested that there be less than
100 percent guarantee to the lender. Maybe it's only 98 percent
guarantee, but at least that the lender have a little bit of his own
money involved in this process.

And in temu of the incentives for the guarantee agency — you
were just talking about income tax offsets; that doesn't occur until
the guarantee agency decides to give up on the loan and wnd it to
Washington. They don't have the right to go after the income tax
offsets.

And there's a tendency for them to take a loan which is delin-
quent and let it go ahead and default, because then they get a per-
cent^ of the collections if they can make collections. If they send
it to Washington, they don't get a percentage of the collections. So
their incentive is to keep the loan, not use the IRS offset, and see if
th^ can work it with their own mechanisms.

We sug^^ested that this 30 or 35 percent— it depends on which
State you re in— automatic amount that the guarantee agency gets
to keep, that that provision be reexanuned and, we think, ought to
be repealed. And then instead, you might have payments to them
which were based upon the percentage of the loans that were delin-
quent but didn't go mto default.

In other words, how succe«ful were they at curing delinquencies
and preventing somebody from actually navii^ a default, rather
than paying them only when the default had occurred. And then.

o 1 • •

323

at the same time, you look at whether the defaulted loans ought to
go to Washington right away and let the Department of Education
use the IRS onset, and some of these other proposals.

Mr. Andrews. Let me just close in asking anyone on the panel to
react: What would your reaction be if we were to tiy to ratabliah a
system where defaulted student loans became automatically a lien
a^inst real ^tate in each State, a lien against real ^tate owned
by the defaulting borrower?

Mr. Sanders. That's an idea that I've not heard discussed, so 1
don't know off the cuff exactly how to react to it without a little bit
more information. My assumption is that many of the ^udents
who default probably do not own real estate, so there probably is
nothing there in many casra. , . ,

Mr. Andrews. Perhaiw thoi^h, at the time of purchase, down
the n»d, when someone purchase, a lien could attach and so
forth. Thank you very much.

Thank you, Mr. Chairman.

Chairman Ford. Mr. Henry?

Mr, Henry. Thank you, Mr. Chairman. I want to express a spe-
cial appreciation to Mr. Sandeni, Mr. Thomas, and Mr. Thompson
for what I regard as bemg splendid testimony. I have to tell you
I'm a little bit dismayed by the kind of tepid reception youve
gotten thus far. , j r

This is a serious problem. We talk about $2.7 billion in defaults,
that doesn't even count the wasted Pell Grant money, which tech-
nically isn't a default but it's a ripK)fr and exploitation of the
system; we know that's a problem. And the $2.7 billion, as 1 under-
stand, is your net loss after your collections and all the collection
efforts that are out there. . , .

None of the problems you raise are new. Every single one of
them was before this committee 5 years ago, and we couldn t get
this committee to act. I'm just going through them: the scw" of
switching from clock-hours to credit-hours in order to dole the Fed-
eral Government; paying of recruitment fees by proprietary
schools; having corporations that were really shells built around
the student need p««rams rather than genuine academic institu-
tions—and I don't think it helps, really, to drag Harvard into it
and to suggest that Harvard's doing that— using accrediting agen-
cies as masks to legitimize these kinds of practices. They ve all
t)G6n there*

And I'm just pleased to see that the new Secretary has taken
such a strong lead and appointing a fmancial undersecretary to
really dig into this. I appreciate the cogency of your testimony. I
appreciate and regard it as highly supportive of the report from
the Comptroller General and the inspector general's testimony.

I want to commend Senator Nunn for having the courap to
speak out as vigorously as he did on this 2 weeks ago. And I just
hope that this committee doesn't become the bottomless pit that all
this hard data kind of sinks into.

When we talk about abuses in the system, one of the things
that's been forgotten is that the students are being abused Stu-
dents are being exploited. And it's students who bear much ol the
responsibility of these defaults.

ERIC

324

And while we wapt to address the really scandalous practices of
the few that have beclouded this prc^ram so mriously, it's the stu-
dents that are left holdii^ the noW It's the students that we talk
about in terms of collecting on their IRS returns or the pc^ibilitv
of attaching liens on property, although in most cases they don t
have property. They're the ones who have been exploited.

We need consumer protection, not just by way of looking at the
accreduing agencira, but ransumer protection for less than literate
studente. I think it was the IG's testimony that pointed out that
some of these schools are recruitii^ illiterate, giving them money,
and taking their money and giving thf^m nothing for it.

Now there's two ways of addressing this, I think, that might be
very, very clean and solve a lot of this problem for you. One is to
focus on the ability to benefit provision. Tve gone around and
around this ^th the Chairman in the past. I still don't understand
why we need an ability to benefit circumvention- That is to say,
the basic Act require high school completion or a high school
equivalency, but tnei; has provided for ability to benefit exceptions.
And that has been the area, it seems to me, where the greatest
abuse has taken place.

Is that a fair statement? That the slippery edge of this slope has
been the ability to benefit exceptions, whether you're talking about
the accrediting problems or the ability to beneflt test, or where de-
fault rates come from. Is it not true that the defaults disproportion-
ately are coming from these dbility to benefit exceptions; is that an
accurate statement?

Mr. Thompson. Yes. A disproportionate amount of them all from
an ability to benefit,

Mr. Henbv. Why do we need to give Federal funds for students
to })ursue higher education when they haven't even gotten a GED
equivalency, when, in fact, eveiy State in the Union has pn^ams
to give people GED equivalencies without cost to the Federal Gov-
ernment. Actually we're already pumping Federal money into
adult education for that very purpose. Anyway, isn't that really
kind of a double dip? Does it reaUy make sense to put someone
under a higher education program that hasn't demonstrated the
discipline of getting a GEd certificate? Does that make sense to
you?

Mr. Sanders. Well, there has to be a standard there. I think we
made some improvements this last round, Mr. Hennr, with the in-
dependence and the approval of the ability to benefit test through
our agency. Time will give us the answer as to whether that re-
sponse has been adequate or whether we need to look at some
other standards there

Mr. Henry. My understanding of the seven t^ts, or so, that have
been approved since the 1990 buc^t reconciliation agreement
where we have that language, that basicallv, for aU practical in*
tenta, they're all GED equivalency exams that aro recognized by
the States as such. Two or three new ones are coming down the
line, but basically they're GED equivalents.

Mr. Sandrhs. I don't know the answer to that, as to whether
they're GED equivalents or not. They may well be. We are in the
interim period where we are in this transition period^ accepting
and approving tests that are currently on the market. And we are

325

developing a new set of standards and a process that will approve
test— ~

Mr Hsa«RY. As you do that, could I encourage you to work very
closely with Mr. Parrell, who is working on this as well with you,
to look at that correlation and take that into consideration when
you deal with those ability to benefit tests that you re now utiliz-

^"^other issue: we talk so much about trying to reform the insti-
tutions, reform the accrediting process, proving schools, mcreasmg
the lender's risk, preventing conflicts of interest, focusmg on de-
fault prevention, setting reserve requirements. Why not simply
have the educational institution bear part of the nsk of the lo^?

In other words, if the educational institution is admitting that
student, and coming to the Federal Government on behalf of that
student to certify that student for Federal financial assistance,
isn't that educational institution making a judgement about that

student? , . . , . , • ^i.

And if you involved the educational institution in sharing the
risk of the loan, wouldn't that be a lot easier— not necessarily the
whole thing, but sharing some direct risk? Simply saying that a
student defaults, you'll bear a proportion of that default; won t that
then affect the way an educational student judges?

Right now, the reward is that the system is used to generate
money by these few, but it adds up to $3 billion if we count Pell
abuses, I ro sure. Why couldn't we have the institution share some
of the risk as a cosigner of the note?

Mr. Sanders. I think that's entirely possible, Mr. Henry. We
looked at some possible scenarios like that as we looked at what
States might do as they determined how they put the equivalent of
the State's full faith and credit behind a guarantee agen^.

My staff just wrote me a note, too, suggesting that the delayed
disbursements and the prorated refunds are, mdeed, other policy
ways that the institution, indeed, is affected and does participate m

the risks. , . , . • r

Mr. Henry. The final question is: At the very beginnmg of this
process, early on in the year, the Chairman outlmed and presented
to the Congress a very broad-ranging statement m terms of the
things we would be looking at in this reauthorization, mcludmg
putting on the table, at least for public discussion, the ixwsibility of
changing the GSL program to a direct Federal loan in simply elimi-
nating ttie middleman, the various guarantee agencies.

I know that's somewhat contentious. Is the Secretary gomg to
come back to the committee with the recommendation m pursuit of
that? It would save a lot of overhead.

I am struck by the fact that I'm getting increased communira-
tion from migor universities as well as smaller institutions, private
as well as public, about tremendous bookkeeping, amounting, im-
perwork problems in processing all the loans because the multiplic-
ity of lending authonties, banks, guarantee agenci^. 1 m finding
that, from the institutions' point of v'ew, it makes a lot more sense
m terms of rgfulatory simplicity. , . , . , ^ . „

From the Federal Government's pomt of view, whatever meffi-
ciencies may arise from direct Federal management of the ^^rn,
you're weighmg that against the lender processing fees. I dont

326

know which will cost moie. But is the department actively looking
at that possibility, as the former Secretary hinted at the beginning
of the year?

Mr. Sanders. We have been actively looking at the possibilities
of a direct loan pr(^;ram structure in place of the current struc-
ture. We've also been looking and considering what other alterna-
tive structures might be available and their effects.

The proposal that we will send forward to you in the next few
days does not contain a recommendation that we move to a direct
loan pn^^m. I don't know what we may later do, since we have
had such studies underway. But at the current time, our proposal
does not contain such a requ^ Mr. Henry.

Mr, Henry. I think conversion to a direct loan pn^ram,
strengthened emphasis on a continued effort to reforming the abili-
ty to benefit provisions, utilizing a GED competency or Cfirtificate
for getting higher education assistance, and involving the institu-
tion, itself, in direct risk of the loan would do more to ciean up
these abuses than somt of the more cumbersome approach^.

But, nonetheless, I just want to conclude by saying thank you for

Sur testimony. I think you are absolutely on target. And I m em-
rraraed for the fact that some of the questioning seems to ques-
tion whether you are on the right track; I think you are. I hope
you succeed, lliank you very much.
Mr, Sandebs. Thank you.

Chairman Ford. I thank the gentlemen who came down here. I
do want to respond to one of the gentleman's questions. Wouldn't it
be easier to simply accept a certificate from some school that a
person was a high school graduate and foiiget all this ability to ben-
efit nonsense?

As you sit here, you keep being bombarded by anecdotal anxi-
eties that are exprrased over and over again. One of them is that
some— depending on who's telling the story—substantial portion of
the kids getting a high school diploma can't read and comprehend
well and can't compute.

If you are running a serious-minded computer prc^ram and you
tested that person when they came to school and found out that
th^ couldn t read and a>mpute, you wouldn't <»re whether they
had a certificate or not. The certificate doesn't try to determine
whether or not the person knows enough to at»orb the educational
product.

On the other hand, you take the 30-year-old high school dropout
m an area like Mr. Henry's and my own who, at 18, went to work
for one of the m^r factories, and has worked steadily ever since
at relatively good industrial wages. 22,500 of those jobs disappeared
from our State in 1 year in one company. General Motors. And sud-
denly, here's a 30-year^ld with 2 or 3 children to support, looking
around for something to be trained for, something that would help
him chan^ his occupation.

And so if we said to him, "I'm sorry, you dropped out in the 10th
or 11th grade, and in spite of the fact that you seemed to have
functioned well in a work environment, we can't consider your
qualifications for this unless vou have the certificate," it would be
kind of silly for us to spend his time and our money to send him

327

back to get a piece of paper when so much of the public doran't
trust the piece of paper anyhow. _^ . u

I'm not aware that employers are wilhng to accept a high school
diploma as evidence that people have entry level skills for any job.
We don't in the Federal Government; I know that as the former
Chairman of the Post Office and Civil Service Committee. It s not
like a graduate degree where tJiere are some presumptions created.
There's merely a presumption created by completion that you re
not a quitter. But beyond that, it doesn't tell you a dam thing
about how much educational skill you bring to the job.

I think we have to be very careful with the Federal Government
trying to unsnarl these kinds of problems and define them with too
much focus when the rest of America hasn't been able to do it m
many hundreds of years. I think we've got to be very <»reful when
we look at something like ability to benefit and fail to rec^ize
ability to benefit is what it says. There should be a method em-

Eloyed that will determine whether the person has the ability to
enefit irom this education. . ,

When I asked a truck driving school owner m my own home
town if he made a determination that the person had not bron pei^
manently barred from driving in our State because thej; had killed
somebody with a car or had repeated drunk driving violations or
drug driving violations, he said it wasn't his problem, it vfBB the
State's problem to find out whether the person can get a license
after he train«i them. *v,=
Well, clearly to me, that's what I thought would be one of the
questions you'd ask to determine if the student had the abihty to
benefit.

Mr. Henry. Would the gentleman yield?

Chairman Fohd. Yes. , ....

Mr. Henry. I know of the Chairman's strong interest m protectr
ing the interest of the worker, the example he cites. And I Uiink
fairness ought to point out that be has very generously sch^uled a
separate hearing for the committee for an opportunity and panel
on this very question; so we're going to face this question head on.

But my response would simply be this: first of all, what we oi^ht
to do is not then build a higher educational system around the twl-
ures of the secondary school, but he has also now triggered m the
whole question of trying to get accountability m our secondary
schools*

And, of course, we'll see tomorrow when the Elementary and
Secondary Subcommittee meets, what kind of support there 11 be
for the administration's attempt to get increased measured ac-
countability through some kind of national assessment exam where
parents can have their kids tested to find out exactly where they
are and what that high school diploma means, or whether we U ob-
fuscate that question with some kind of commission or study to
look at it and report back to Congress in 5 years. ,

The second thing is, that worker, whether it be someone who s
been there 30 years or not, m many cases is going to be able to
pass that GED exam rather readily. And if he can t, he probably
needs basic literacy to enter the changed workforce.

We're looking at this in terms of the nature of the chanpng
work station, and this is where the abuse has occurred, Mr. i-ord.

FRIC

328

And I am findii^ that increasing numbers of the proprietary
schools utilize the GED as the ability to benefit test. And it is the
few who don't, but it's the few who always scream the loudest and
intimidate some of their own lobbying organizations here in Con-
gress to preventing the minority of the proprietary schools to ac-
cepting that as a criteria.

And I hope our committee staff is trying to get some handle on
that to find out where proprietaries rrally are* because Tve found,
very broadly, in Michigan, strong support for GED so the good pro-
prietaries can distinguish themselves from the ones that are mus-
ing up this pn^ram, creating this outrage on the taxfrnyer, and ex-
ploiting students.

And 1 would say that one who doesn't have that GED is probably
the one most likely to be exploited by a recruiter who promises
them rags to riches in 6 weeks, through some Guaranteed Student
Loan pn^ram. We're trying to protect that worker every bit as
much as help him.

I thank the Chairman.

Chairman Ford. Mr. Reed?

Mr. Re^. Thank you, Mr. Chairman. Mr. Thomas, there's an in-
terrating colloquy on page 27 of the Nunn report, not your testimo-
ny today, but Senator Nunn's report, about the r^ulations of the
department, particularly with respect to aorreditation. And it
would seem that the department h^ a wide latitude at present to
make significant improvements in their i^ulations to clarify pro-
gx^ms and standards.

Is the department acting aggresEdvely to reform its own regula-
tions, i^ht now, to clarify some of these issues?

Mr. 'niOMAS, Certainly there are a number of them, Mr. Reed,
that are in process at the prraent time. You heard the Deputy Sec-
retary^ talk about the branch campus r^ which is in process.
There s also one on conversion from clock to cr»iit hours; tnat's in
process. There have been some recent ones concerning the statute
change on the 30 percent default and the like.

So there are a number of those that are in pnx^ess not only of
creating new r^ulations but also of changing the administrative
practii^ within the departoient, that don't necessarily even re-
quire chaises in the relations. We see some indications that that
is happening.

We see a new vigor in that area since Mike Farrell has come on
board. The problem is, of course, that you can't tell the effects of it
for a year, year and a half down the road- You see the good intent,
the people moving behind it, the impetus to want to do the r^ht
thing. And my perspective is let's do the right thing, and it wU
work itself out, but we can't tell how effective it is for a year down
the road. That's kind of difficult to measure at this point in time.

Mr. Rekd. But we can hopefully rely on the fact that the deimrt-
ment is ararressively moving today to remedy, as b€«t it can, some
of the prrt>lems that they've identified with respect to this whole
prcwram; is that a fair statement?

Mr. Thomas. I would let the Deputy Secretary answer that on
the part of the department as a whole, but I would o^rtainly add
just two things. First, one is that there are a number of changes
that are being made that I mentioned to you.

^1 i

329

The other thing is that the department, a little over a year ago,
created a mechanisin to deal with many of these management
issues, that the Deputy Secretary created a committee that deals
with the rmdts of audits and how to iniplement tiiose audit recom-
mendations, and it's called an "Audit Follow-up Committee." And
that committee meets with r^larity. And I've seen a lot of very
significant changes coming out of it, and I'm quite encouraged by it
aU.

Mr. Rkkd. Just a final question on this point: When can we an-
ticipate a conclusion of this regulatory process? Will this fall be a

Sint at which these r^ulations have been put in place; is that a
ir estimate? . ^.

Mr. Sandkhs. Well, it's more than just putting new r^ulations
in process. Yes, we are moving and implementmg, and were at
various sta^ Uiere of the r^ulation development and implemen-
tation thatMr. Thomas talks about. But there are also administra-
tive steps within existii^ and new authority, that we are exercis-
ing, likewise, Mr. Reed.

I might just cite one example. You have now given us the very
cl«u- authority to take emergeniy actions. We got the r^ulation m

f>lace so that we could act under it in September, as I recall, last
all, and we have done so on better then 20 occasions. We ve used
that emergency authority to terminate, immediately, schools pm--
ticipation. Yes, we are very seriously committed to improving the
overall management of this pit^ram.

Mr. Rekd. Let me turn to another ^neral question, and that is:
It seems to me that one of your m^or strat^es to addrew this
problem is to shift risk to tJiose other participant systems other
than the Federal Government, particularly shifting risk to lenders,
and sort of a simple-minded thought I have in my head is that
lenders' capacity to absorb risk is usually a direct function of how
much you want to pay them. . . , .

In this risk shifting, who is going to absorb the cost? Will it be
students who can't get credit, students who can't get loans? Or will
you design a system in which these costs are absorbed by other par-
tics in th6 systeni?

Mr. Sandkbs. Well, in the case of the lenders, the cost will be
absorbed by the lenders, themselves. There is no way that they can
directly pass it along to students. They will have to manage the
total portfolio of loans that they are making to assure that they do
not produce loans that, in the aggregate, produce a greater than ZO
percent default rate. But the lenders woiUd be the ones who would
pay the price whenever that happens. . . , ,

In terms of the States' sharing in the risk, mdeed, under some
scenarios, that cost could be pa»ed by the State along to the stu-
dent, because what we're requirirMf is that they put the equivalent
of the full faith and credit of the State behind the State s oes^aj-
ed guarantee agency. We ask them to begin participating at the 20
pert»nt point ^t we discussed earlier and pick up the cost above

Biit, indeed, they could pasb those costs in some kind of a fee to a
student who would indeed have to pay at the time of enroUment to
create a pool that would provide those guarantees. But that, basi-
cally, would be a State determination.

ERIC

330

Mr. Reed. So you don't anticipate that this would make credit
availability more difficult for students^ given that the risks now are
being absorbed by both the States and lenders, or is that sometiiing
that you can control in your propmals?

Mr. Sanders. Well, I think that's one of the Catch 22s in the pro-
gram, because we also have to asure that there is a lender of last
resort, so that, indeed, there is a place where any eligible student
can go to receive a l(mn. One of the things, though, Uiat we have
learned is that students take more seriously this responsibility of
loan obligation whenever there is certain kinds of instruction
during the loan application process.

And, indeed, we believe that we might improve our default rates,
not by limiting the number of students who participate, but by the
seriou8nes» with which they enter into an obligation.

Mr. Reed. Turning to the issue of accreditation, it seems to me
that you've been talking about imposing fmancial responsibility on
other parts of the system. The accreditation i^ue: Why can't yon
move more aggressively to ensure a proper accreditation or more
stringent accreditation standards right now?

Mr. Sanders. I'm not sure that I fully imderstand the question,
but there are a number of steps that we can and that we are
taking and will take to improve our oversight of accrediting agen-
cies, from strengthening the membership on the Secretary's adviso-
ry group to the process^ by which our staff does the analysis and
provides information to them for decision-making processes to
opening up their deliberative process to make sure that, if there
are problems from third parties, that they get identified and they
get considered in that process. We are doing those kinds of things
today.

Mr, Reed. Are those sufficient, in your view, to improve the qual-
ity of the schools and thi quality of the instruction that we're
paying for?

Mr. Sanders. They will improve things, yes. Whether they are
sufficient, in and of themselves, I think we can only answer with
the passage of time, when we see the effect of their implementa-
tion.

Mr. Reed. Related to the question of accreditation is a question
of licensing by the States. Are you actively going to involve your-
self in that?

Mr. Sanders. We have not proposed that as a part of reauthor-
ization. We've looked at how we strengthen State licensing proccM-
es because, as I mentioned before, it is a mixed bag, there arc
States that do a very good job, there are States that do mediocre,
and there are States that may not be doing a very good job at all.

And instead of propraing a direct oversight authori^ of the State
agencies, we've acted in two ways. We've acted to work collabora-
tively with States to improve their overeight processes and, with
these proposals, tried to give them a greater stake in exercising
oversight by requiring them to share in the risk, believing that
thai, would, in turn, strengthen their oversight.

Mr. Reed. Why would you take a some^at indirect approach of
asking him to share the risk rather than directly going in and es-
tid>li8mng minimum standards for licensure which would qualify

331

that State for participation in the Federalprogram? It seems to me
Uiat the direct apprrach m^ht be more efficient.

Mr. Sanders. Well, it hasn't worked with our oversight of accred-
iting bodies to this point.

Wc. Reed, But you're improvii^ that, as you indicated.

Mr. Sanders. But we're work^ at improving that. And I think
it would be interesting to see, if we put financial consequences up,
what kind of responses there might he.

Mr. Rekd. Final question, and tins is with respect to reinsurance:
Are all the guarantee agencies required by law to have reinsurance
arrangements? In your tratimony, you've indicated that you're re-
questing they make claims that reinsure within 45 days?

Mr. SENDERS. Yes. What we're requesting is authority to require
them to submit their reinsurance claims to us within a 45-day

Ssriod after they actually pay the lender or the holder of that loan,
ight now, many of the guarantee agencies will, when they pass a
certain percentage, will actuallv hold their claims until they pass
the beginning of the next fiscal year, so that it does not adversely
fidPfect their reimbursement rate.

Mr. Rekd. So, in effect, the Federal Government is the reinsurer
for these guarantee agencies?
Mr. Sanders. Yes, that is correct.

Mr. Rekd. And there's been no contemplation of any other ar-
ran^ments for private reinsurance or anything else that would,
agam, shift die risk?

Mr. Sanders. Not to my knowledge, but there may have been de-
liberations with staff. The answer is no, there is not.

Mr, Reed. Thankyou Mr. Sanders.

Thank you, Mr. Cnairman,

Chairman Ford. Mr. Roemer?

Mr. RoEMEH. Thank you, Mr. Chairman. 1 appreciate the oppor-
tunity to ask some qu^ions.

Mr. Farrell, I don't know who's more depressed from this testi-
mony today, you or I, in looking at the problems that confront both
l^slators and the Education Department. Mr. Reed referred to
some of Senator Sam Nunn's comments from his Senate Perma-
nent Subcommittee on Investigations. These are not my words,
these are the Senator's words. He says, "The subcommittee also
found that through grt^ mismanagement, ineptitude, and neglect
in carrying out its regulatoiy and oversight functions, the Depart-
ment of ^ucation has all but abdicated its responsibility to the
students it is supposed to serve and the taxpayers whose interest it
is charged with protecting."

Last week, we heard testimony that there are proprietary insti-
tutions out there that run truck driving schools without trucks,
computer schools without computers, and auto repair shops teach-
ing hands-on repair without tools. 1 think, gentlemen, that we are
seeing our most vulnerable people exploited through' this process;
they are the most economically vulnerable, and the mwt socially
disadvantaged people. I think that it is your responsibility in the
Department of Education, as well as this committee's, to addr^
this problem.

We saw, through your testimony, that the default rate was 10
percent of the costs in 1980, and now 44 percent in 1990. I guess

332

one of my questions would be: Based on that^ how many employees
in the Department of Education were working on default rollecUon
in 19^, and how many do we have now, and what kind of priority
is it at this point in the Department of Education?

Mr* Sanders. My rea)Uection— and th^ are not exact num-
bers—in 1980, I believe, there were roughly 18(M) employee that
were assigned to Pc»teecondary Education. About 800 of them were
put-time and dealing with debt collection responsibilities that we
had at that time. Today there are roughly 1100 employee there —
and I can get you t he exact numbers — and we have requested a
total additional FTD of 150 staff members between the Fiscal 1991
and the 1992 budget requrat.

We believe that we are understaffed, particularly in the area of
having people who can do the kinds of financial analysis that is
necrasaiy both for guarantee agencies, lenders, and schools. Also
we have been taking a number of aggre^ive steps, management-
wise, to improve our oversight of each of the institutions that par-
ticipate in the program.

We are now strat^cally targeting our monitoring of schools* We
have significantly increased the numbers of such monitoring visits
each year. We are strengthening and improving our monitoring
and our oversight of guarantee agencies, likewise.

Mr RoEMER. Let me just ask as a follow-up, Mr. Sanders: When
we see in the testimony that a proprietary school whose students
receive the most Federal aid, received a quarter of a billion dollars,
and its reported cohort default rate for 1988— this is 3 years ago—
was 46 percent. Now, how does it follow that they continue to get
added support eventhough the default rate is so hi^h?

Mr. Sanders. Today, that school would be monitored very, very
closely, simply based upon its aggr^ate default rate. That would
have not necessarily been true 3 years ago.

Mr. RoEMER, And now that new^ improved monitoring is a result
of what?

Mr. Sanders. That is a result of direct administrative actions
that were taken late last summer, that would b^n strategically
targeting our school visitations.

Mr. RoEMER. Well, let me ask you another, more sp^iflc qu^
tion. Regarding the accreditation proc^ within the Department of
Education and you have acknowledged that there is a significant
problem there. How many schools have been turned down for ac-
creditation? If you (^uld give us some kind of a aggr^ate total
over the past 10 years; do you have that?

Mr. Sanders. I don't have it at my fingertij^, but we can provide
that for you, Mr, Roemer.

Mr* RosMSR. Okay.

Mr, Sandi^. As I mentioned earlier, my quick recollection is
like 2 or 3, or roughly 10 percent^ for this past year.

Mr. RoEMER. Mr. Thomas, one of my questions would be, maybe,
directed to you. The GAO, in this testimony, says that it cannot
even audit the GSL because the accounting records are so poorly
maintained. What suggestions do you have to improve that?— or,
Mr. Sanders, if you want to address that question.

Mr. Thomas. We have done a significant amount of audit work,
Mr. Roemer, in the aorounting systems, and it's true that the ac-

ERLC

333

counting systems are in very bad condition. We've reported this
over the years, as has GAO. We are, at the present, workin|E as a
team environment with the General Accounting Office trying to
make sure that those records are auditable so that we can, in fact,
render an opinion on the GSL program by the end of the fiscal
year 1992-not 1991, but 1992.

We are hopeful that by our joint effort, we will be able to do
that. Now, the CPO Act was passed in late 1990. Recently the
President has named the Deputy Secretary, Ted SanderSjas a CFO,
and the Deputy Secretary has now chcraen a Deputy CFO. And 1
know from personal experience that the person chosen is very a)m-
petent, because he was the chief of my audit organization, and he
18 now there working very diligently, trying to get those records m
auditable condition.

It will not be an overnight turnaround. It s a very, very long-
term, complex process. We did some audit work earlier this year,
and we found that the accounting systems are out of balance into
the billions of dollars when comparing the accounting systenw with
the bank account, if you will, at the Treasury Department. So, it s
going to be a loi^, drawn-out prowss, and Mr. Sanders has got his
5>b cut out for him as the new CFO for the department.

Mr. Sandebs. I might add to that response, if I might Mr.
Roemer, the Secretary is very, very concerned about the pr^lems
in both areas, our financial systems as well as generally m the stu-
dent aid program, and is in the process of delegating to us the nec-
essary authority to carry out and to meet this responsibility, m
well as the priority on staffing and other resources necessary to ad-
dress these problems. . ™ .J ^

It is not a situation that we will, as Mr. Thomas said, turn
around overnight, just as this other set of problems fall into that
category. But we are deeply committed to living up to those expec-
tations that these problems will indeed be effectively addrrased.

Mr. Roemer. I just want to conclude by saying ttiat I felt com-
pelled to ask you some tough questions today. I was back in my di^
trict this past weekend, where we are seeing school teachers pmk
slipped throughout the State of Indiana. Parents, as they shake my
hand in parades, are complaining about the education system.
Now, before this committee, you have testified this mornmg about
the problems within the Department of Education, and mcreasmg
amounts of loaned money not being collected. , . j

People back in my State, the Hoosier State, do not understand
how we in Washington see these growing problems. When I go bw;k
there and argue for increased money for education, for change, tor
reforms, for revolutionary new methods to teach in the schwls— I
need to be able to tell them ehat we are cleaning this program up.
I certainly hope that that is at the top of your list, Mr. Farrell, and
Secretary Alexander's.
Thank you very much. ^ . . .i.. j ^

Chairman Ford. Mr. Sanders, we've talked about this, and I ye
already suggested to Mr. Farrell that we had somebody brought m
as a hit man like him in the Carter administration. And he be<»me
famous for one statement, "My God. they keep the student loan
records in cardboard boxes like women keep their recipes m the
kitchen." And he set out to give us a computer base.

S34

Well, almost 10 yean later, Mr. Coleman and I specificallv au*
thori^ the department in the last reauthorization to develop a
national student loan data ^atem. We did say, 'Tou will not, how-
ever, use that WBtem for the purpose of screening applicants for
loans until you nrst get the tiling going and we have some satisfac-
tion that it 5 goii^ to work, that it won't became a new bottleneck
that i^perwork gets piled up behind for months at a time, trying to
get the applications processed/'

Now, from 1986 to 1989, the excuse, according to the GAO, on
page 7 of their statement, the excuse was that tne administration
was reluctant to go ahead and fund the design of a new system
until the restriction on using it was deigned. Whoever made that
decision must have been a defense procurement person. Only there,
am I aware, do we buy a weapon s}^tem before we find out if it
will fly, and they don't always fly.

We didn't want the Department of Ekiucation to put in place a
iunr-rigged data system. Now I hear everybody saying, "If only we
had a data system, we a>uld tell you what s going on in the student
loan pn^am." And according to the GAO, Mr. Sanders, this re-
quirement that you go ahead, from 1986, mav be met by late 1993.

Now my quick calculation of that is that that's more than a rea-
sonable start-up time. We can get a new bomber faster than that.
And when you give us assurance that this time it's for n^, that
the depirtment wants to do it, given the cpportunity to still be
here, I m going to be after you r^fularly to find out how far along
you are,

I don't think that any other place in the government would we
tolerate having somebody come in now, 5 years after the fact, and
saying, ''Well, we didn't take ^u seriously before, and had we, we
would now have the information. Things are going to be diflerent,"
But then GAO reports, apparently from examining your people
over there, that you won't be x^dy until late 1993.

This legislation that we're trying to reauthorize should be in
place by then. Should we tell you cm<^ again in 1993 to go ahead
with the data t^k and establish something so that the ansv^r
won't rontinually come from all four quarters down there« "We just
really don't know because we don't have the data on that." That's
what we were getting before the last reauthori2ation, and we
thought it would help if we specifically authorised the department
to get into the data business.

It doesn't seem— and I'm not blaming you for this, because I'm
familiar with how long you've b^n responsible for it— but what
we're talking about here is not a failure of the l^fislation that has
to be fixed as we reauthorize. We're talking about a failure of ad-
ministration. We're talking about people who complain loudly and
publicly, all during the administration preceding this one, about
loan defaults and deadbeats and people who got away with the gov-
ernment's money for nothing. And then, according to this record
you present us today, they did not do one thing to collect the loan.

As a matter of fact, when Mr. Reagan came in, I recall that
when his budget passed in 1981 that devastated so many of our pro-
grams, that budget took the 200 loan collectors who were then em-
ployed by the Department of Eduction and threw them off the
payroll as a money-saving device.

ERIC ^ ^ ^

835

But the track record of your predecessors in administering the
law is so bad that we're going to be extremely careful, if I have
anything to say about it, about changing the law until we ran |fet
the people that are suppo^ to carry it out to do it. It s like having
a drunk driving statute on the books and no cops that are willing
to arrrat people for it . , ^

I don't want to pick up the paper and read again that Congress
has not been alert to solving these problems when we have this
kind of a time lapse in just getting the account straight so we know
who is messing the system up.

Mr. Payne? , .

Mr. Payne. Thank you, Mr. Chairman. I just have a question or
two, about the testimony by Mr. Thomas on the default reduction
proposal. One of them was concerning the business of having a
minimum course of 6 months or 600 hours. Then you go on to say
that you would require lenders to perform credit checks, delaying
loan disbursements for 60 days to first-year students with schools
that have default rates of over 30 percent, ^ i. •

Would the student, therefore, be required to pay the beginning
amount, or how would that work?

Mr Sandebs. My understanding is that, in mcwt cases, no, the
student would not be required, it would be the school that would be
expected to carry the student until the time that the disbursement
was made.

Mr. Pavne. And what would you be checking? You take a typical
kid in my district that might want to go to a proprietary school.
Many of them have difficultly even staying with parents because
places are overcrowded. They would love to perhaps own some
property but then what would you check? You would find out that
the person has no money or he or she has no assets? What would
you be looking for? And then once you found it, then what would
you do? , . ,

Mr. Sanders. First of all, the credit checks, by my recodect .on.
would not be for all students but those who are over 21. And
second, the first thing we would be looking for is to whether or not
they had received a student loan in the past and had defaulted
upon that loan.

Mr. Payne. So you'll be primarily be looking for violation of
TiUe IV previously.

Mr, Sanders. Right ,

Mr. Payne. Okay. One of my colleagues indicated that he
thought that perhaps that banks or lenders should share m. I think
that that would probably be one of the worst things that could
happen, once again, because a person who would be considered a
bad risk— as we've seen in inner cities with redlining from banks
and lenders not lending money into areas where— they call it dis-
investment," we just call it '^redlining"— How would you, if that
came into being, how would you prevent redlmmg of students,
which would probably be the same practice that's been followed
with property reinvestment. , . , , ,

Mr. Sandkis. I don't know, fully, the answer to that, but I would
remind us that the Act does call for a lender of last resort so that
there would, theoretically, always be a lender that the student
could go to.

ERIC

336

Mr* Payne. There was also a person that mentioned about this
national assessment exam that ne thought this was the greatest
thing he's heard re(»ntly. I wonder what a national aswrament, or
a national test would prove. I don't think you need to spend a tre-
mendous amount of money giving a national exam, becau% you
could almost tell—very easily in my State— where you're going to
get the higher marks*

That's going to be the suburban areas, where they have a high
per-student allocation from their local tax base, because* as you
know, public schoote are based on l^e locality in our State, and,
therefore, the poor towns and cities, of course, have less per capita
per student And it would just go to reason that in those areas
where you have a higher per^tudent capita, you're going to cer-
tainly have higher test scores.

We could save a lot of money just by, rather than having nation*
al ass^ment test it seems to me, we should be trying to talk about
how do we try to improve the quality of education, as they tried to
do in my State, by taking money from richer districts and shifting
it to poorer districts. And as a result, the governor will probably
lose his reelection because he was talking ^ut trying to make a
level playing field.

Although when we talk about success, completion, and so forth,
we have to talk about the quality of this secondary education. And
bv overlooking that and just talking about how many people com-
plete and how many people default, I think we're really closing our
eyes to the sj^temic problem of the access to quality education for
students throi^hout this country. Would you agree with that, any
one of you?

Mr. OANDER& I think I would generally agree with that. I would,
though, point out that the goals i»nels, are at least seriously talk-
ing about this notion of a national test or a national system of test-
ing—I do believe, as reflected in their discussions, that the setting
of such standards and then the assessment and reporting from the
^oals imnels be a point on a voluntary basis would actually help us
in looking for improvement in all quarters of the educational
system. And, indeed, they see that as a vehicle to spark the neces*
sary improvements.

Mr. rAVNE. Just 0nally, I understand around 1980 there was a
shift ^rom grant orograms into more loan pn^rams; is that true?
In other words, there were more grants available and 1^ loans.

Mr* Sanders. The ratio of grants to loans, we've got that data,
Mr. Payne.

Mr, Payne. Yes, I would be interested in that.

Mr. Sanders. And we would be happy to make it available to
you, that would trace, maybe, acrms a decade.

Mr. Payne. Okay. Because one of the problems may be that a lot
of the people are not paying their loans and I'd also like to know
what the diiTerence in the default is from people who have dropped
out as opposed to those who have completed, who you would
assume are working. I would like that to he made available if you
have that.

But my final point is simply that it s diflicult to pay a loan back
when you don*t nave any job m order to pay it back. The Secretary
of Education came before us recently and talked about his going

ERLC 0 1 1

337

through coll^ where he had some scholarship aid, but he worked
his way through, he had a ioh. And I also share that I had a little
scholarship and also worked my way through.

The only difference in then and now is that I could get a job be-
cause there were jdbs a^milable. It's ahnost impossible for a student
to work his or her wy through school in many instances, because
there are no jobs available. And so for us to take our particular ex-
perience and say, "Well, I worked my way through, therefore every
youngster should be able to do that,^ a lot of them would really be
willing to do it if thev could find employment. And I know that s
(»rtainly K)mething that you are not responsible for nor can move
a wand to increase the ji^ pooL

But I would be interested in knowing just how many are at-
tempting to pay it back, and how do you prevent schools from
moving out of plsnxs where you have lugh-nsk students, becauw
you m^ht find that all proprietary schools or others will move into
an area where they're going to be assured of a higher success rate
therefore mitii^ting against those students who are left. And I
know that's a tough one. . .„

And finally, you know one sua^^ul prqjram was the ul bill
after World War U. And there were no defaults because it was all
grants. And so maybe we need to take a look at the fact that
maybe we need to reassess the grant/loan question again and try
to see how we could, perhaps, realign in today's economy; because
not only does the government get angry and frustrated with the m-
crease in defaults, but then that student is put on a bad list and
can't qualify for Title IV any other time or things of that nature
and has a stigma following him or her throughout their lifetime.

And so maybe we need to take another look at that proportion of
grants to loans. It would be less frustration since they re all mdi-
rectly grante anyway sinc» they're not being paid. So rather than
call them defaults, we might just take another look at the manner
in which they're done.

One other point, when we get to the bank situation was when
they had the National Defense Loans back in the 19608, we found
that students from my town were unable to get l(»ns be(»use one
of the practices of the banks was that vou previously had a bank
am)unt at their place becaui« they did business with their custom-
ers, that was just good business in a normal business sense.

People on public assistance were, at that time, restricted by law
from Having a bank account. So when a student was accepted to
college and went to a local bank to get a National Defense Loan, at
that time, they were denied because there was no account that
they or their parents had, and like I said, by virtue of the fact that
it was Ulc^ to have a t»nk axxovnt.

And once again, I get concerned about this question— we could
just see a reoonirrence, of what occurred back in the 19608.

Mr. Sandkbs. Thank you, Mr. Payne. You make a number of
veiy, very valid points. It would be difficult for me to respond to
every one of them, but if I might just pick out a couple of them
there, and if you want me to respond to some others, I would be
del^hted to do so. ^

Some of those are very, very tough issues that you and we must
grapple with. First of all, we do not have any control over where

O 4 1

ERIC

338

schools are located and where they do busine^ It would, under the
current system, be inappropriate for us to try to tell them where
th^ must go and what they, indeed, must do.

But we haw been very, very concerned and debated extensively
what ought to be the balance between grants and hxcos. And, as
you know, in the proposal that we're bringmg forward to you.
we're asking for a substantial incr^se in the PeU Grant aw^rd,
goin|; from $2400 to $3700, and for some students who excel aca-
demically an additional $500, taking them up to $4200.

There are a number of reasons why we bring that proposal to
you, one of which is what's happened in terms of the purchasing
power with the Pell over recent years, but another having to do
with the effect of the size of the Pell award and the likelihood of
default and problems later. And there is a very, very clear basis
that $3,0(K) is kind of an important watershed or break-even point
that we ought to seriously attend to as we debate this.

We also Delieve that raising the amount of the Pell award will

Kve a greater number of options to particularly disadvanta^ and
w-income students by increasing the size of the total package that
would be available to them and, therefore, opening opportunities
Uiat might not, heretofore, have been seen as really readily avail-
able to Uiem.
Mr. Payne. Thank yon very much.

Mr. Sawyer, [presiding] Thank vou, Mr. Payne. I am going to
forgo my questions, Mr, Coleman s on a tight schedule— well, I
won't foi^, I'll return— but yield my time to Mr. C!oleman who
wanted to ask a foUow-up question, and he is on a tight schedule.

Mr. Coleman. Thank you, Mr. Sawyer. I appreciate that; that's
quite nice of you. And I don't want you to forego your questions, 1
want you to be able to ask them.

But I had a couple of comments and questions for Ted Sanders.
Would you clarify a little bit more about the risk-sharing aspect
you envision the States participating in with the State guarantee
agencies; is that it?

Mr. Sanders. That's right.

Mr. Coleman. Briefly, just spell out a little bit how you see that
working. And we're not really talking about risk-sharing for States
as much as risk-«haring for students, because, unl^ they're pre-
cluded, the States could just require another origination fee or
something to help fund whatever reserves ar,- necessary under
your proposal. And do you want to preclude that?

Mr. Sanders. No, our proposal would not preclude their passing
that along through some kind of a fee either to the institutions in
the State or to students. In fact, it would allow that to happen.

What the State would be responsible for doing is picking up the
OMt of defaults for defaults in the aggregate above 20 percent for
their designated fpiarantee agency. We would hope that they would
do that from their own coffers, but they could along, create a
pool that was driven in fees to students.

Mr. Coleman. Well, what is the incentive then for a State to
reduce the default rate? What you're doing is shifting some of the
funding of this to the States in your propmal, but what's the incen-
tive for the States then to try to reduce these defaults? If it's going
to be shifted to the students or the institutions, unless they're

339

public institutions, but— what is there in this mechanism that's
going to lower the default rate?

Mr. Sanders. Either way, it puts either a financial or a pohtical
stake in the process for the States and, hopefully, results m a
greater concern on their part as to the behavior of their guarantee
agency, but, more particularly, what's going on m terms of the
oversight of institutions that they, indeed, arc responsible for li-
censing to ensure that they are, indeed, weeding out those mstitu-
tionsthat are not of quality,

Mr. COLSMAN. Well, I think we need to work on making sure
that it hurts the States in this case, not the students. Here you are
allowing good students who are going to pay back their loans, to
pay a fee to cover the cost of others in that State who aren t going
to pay back their loans, in essence. And the inequity of that is obvi-

I think we need to make sure that there's built-in incentives
to the States. And the only way to do that is make sure that the
shoe pinches their foot and not the students, or, m some cases,
even an mstitution which the State isn't going to lose anything
over if an institution has to pay up, although what thev U probably
do is pass it on somehow to tiieir students, but I won t bel^r that.

We talked a lot today about— I'm sorry Mr. Ford isn t here-
about proprietary schools and the default r&UsB and so forth and
this whole system and how we need to reform it. It s unfortunately
not limited just to proprietary schools or for-profits. , ^ . ^-

There are traditional 4 year schools that are also havmg the
same problems because they're utilizing some of the same tectics,
that some of the ones that we have talked about todav have, and
they have now felt the brunt of those. At least one of thrae institu-
tions in my district has, in fact, closed its door this week berause of
it, an institution that's been there for, I think, well over 100 years.

So there is a need to be vigorously enforcing aU these rules on all
types of institutions. And I must say that if there is cnm»n«d
wrongdoing, I hope the department is ur^ng and pushing Uie De-
partment of Justice as much as you possibly can, because there is
no deterrent here until there are some people prosecuted for doing
some of the thinra that they've been doing. . . *u *

And I don't tlunk you need any new laws, necessarily, to do that,
I just think we need to have facts developed and cases brought as
much as we can to put people on notice that we re not going to
allow this to happen anymore. , , , . , u *^

Mr. Sandebs. Our inspector general, who's seated here today,
Mr. Coleman, has done an admirable job in that way, not jug wth
the Department of Justice, but also with states' attorneys. He has
work^very, very closely in many cases with those people m pros-
ecuting these cases. So it isn't just the Department of Justice.

Mr. CknshiAH. Thank you, Mr. Chairman. I wiU leave at this
time, and I appreciate you letting me go first. .i. ,

Mr. Sawyer. I don't want to prolong this any longer than it al-
ready has gone on. I want to echo the gratitude that many have
expressed for the quality of the testimony that we ve heard this
morning, and just, for the record, suggest that our colleague from
Michigan, who, I gather, detected some lack of concern or sangume
response to the material that has been presented this morning, per-

ERIC ' *

340

ha^m just misinterprets tiie demeanor of the members of the com-
mittee who share your concern, as do I.

Let me just return to an area that we've been over several times
for a concluding question, and that is: The incentives that are pro-
vided to guarantee agencies to share in the risk. We have, with Mr.
Reed and Mr. Coleman talked around a good deal of that, I assume,
for example, that, Mr. Thompson, you could «)mfortably sul^imie
under your proposals the department's suggestion to include driv-
er's license identifiers and garnishment of defaulters' wagiro*

Mr. Sanders, the GAO has suggested that the 35 percent bounty
on default collections be repealed to and that the rollection respon-
ability be shifted to the department, I may have mi^ed it, but
could you comment on your response to that?

Mr. Sandebs. I think that that is well worth looking at and de-
bating, Mr, Sawyer. I would not be prepared today to support that.
I would also want to know a little bit more about the history of the
program, too, because my imderstanding — ^and I'm not seeped in
the details of this pn^ram— but that in the original creation of
this structure is that in setting the diminishing amount that the
guarantee agencira would be paid in reinsurance claims, you try to
build an incentive for them on the other side that would have them
to work three defaulted loans and get them back into repayment.
And their incentive was to be able to recover part of those costs by
being able to work those loans.

And so when we do something like this, we do need to consider
what are the larger effects on the financial stability of these guar-
antee agencies if they continue to exist. And I would want to weigh
all of those things very, very carefully before I said we should im-
mediately return those loans,

I thinh there are other options that we should and that we are
looking at very seriously. That is when in the process, if not imme-
diately, those loans should be required to be returned to the Feder-
al Government so that they might be worked in the additional
processes that we have here,

I think the suggestion is in the right direction. It might not be
exactly the right remedy for us. We ought to look at those other
options, too, and understand the larger affect on these institutions.

Mr, Sawyxr. Well, I thank you very much. Let me reiterate grat-
itude for the quality of the testimony this morning, I would associ-
ate myself with the observation that we may well have raised more
questions than weS'e answered, but that's the first step in answer-
ing them. Thank you very much for being here.

If there's no further business to come before the committee, we
stand ac^oumed.

rWhereupon, at 12:05 p.m., the subcommittee was adjourned, sub-
ject to the call of the Chair.]

[Additional material submitted for the record follows,]

341

Cmsnfts of the %Utitcd

tlimR lUpoootfiKi

IVart&giQOt BC 295T5

If i r\ m I tK iw
iiiriMiiiii ttta

Jun» 5, 1991

T«d Sanders
UndecBccretary

U.S. DftpaEt»ent of Education
Washington, D.C. 20202

Dear nx . Sanaers:

I waa unable to ask the following queRtions when you testified
before the Coiwi^tee on Education and Laboc Subcoa»itt«e on
Pofttfiecondary Education Hay 29, 19yl ^

I when do you think the Depatt»enl's financial recoxds will
be in a condition that will «11pw gaO to conplete the rsandated
audit of the student loan insuranctt fund/

2. The Inspector General has fownd that the Institutional
Data System the Depait»ent uses has a sitbstantial aaount of
■issinq Information. Bow coapletB and correct is the
information now? And, how soon w^U it be lori percent
coaplete and correct?

Your rooperation and pcoapt attention by replying to
these questions by June 17, 1991 is grently appreciated.

Sincerely^

Joseph Caydos
Mesber of Concrress

342

UNITED STATES DEPARTMENT OF EDUCATION

W4SMIHC.T0N DC MO)

Beisorabl* Jo««ph tl« Gmyd^
CoanlctM cm Eduution snd l^bor
9ou«« of &«pr«0rat«tiv««
VathintCont ]>C 205 i5

Thl» 1» m r«»pooM to your I«tt*r of Junm S, IWl, vltb foliov-up qu«»£ioix«
froB aj HlMf 29, 1991 hvariog* tncloasd sra my r«ppofi««» to th««* qu«*tioD«.

If you vooXa aik# further loforMtlotj, I vlli b» luippy to raapcxui.

Bneloaura

ERIC

343

ifwwAt tk«B 4o 7w» think th» I>tp»rtMSit * » Htwnrial mroirda vlU b« Is a
cimdiUim that vill aUow C4D to cc^l^tc tha Msdatad Atidlt <rf th« atudrnt
loss iasuraitos futtdt

^1 mm±6 th»y eould im audit xhm GoATaatM SciMto&t loan (CSL)

prograa b^cauaa tba S^apartamt could not produaa a f in a ncial atataaMOt«
Bacauaa of tl» caaja««ity of tlia CSL prograa and tlia U« and raaourcaa it
takaa to aaka cbaagaa is cba profras and acxountlsg ayatawt fiaeal fmmx 1992
«ill ba clia firat yaar for vhich w will ba able to p r o dwea aadicabla
financial atataoasta. Thi« yaar, uaiiif co»tTaetora and axiating ra.oorcaa,
bava baaa making aignifieaat profraaa in prapatatioa for providi^ tba
nacaaaary GSL finuteial itatasaata*

qoMtioai Tba lnap«rt;oT Gosiaral baa found that tba Xaatittttional Data Syataa
tha Dapartaaat u«aa baa a aubatantial aaount of viaaint isfonation. Bam
cQsplata and enrT«et ia tha infonBaticm nowt And, bow aooo will it ba 100
parcaat eosplata and corractt

loawwri Doritts tbo Sprint of 1990 ^ thm Inapactor Canaral'a ttanafosant
l ap r ovaa aot Saport on tha Inatitutional ©ata Spataa (IDS) indicatad that thara
vara niaaing data, particularly within tha inatitatioaal aligibilitj
auba7ataB« Owr tha 9»ar and faU of 1990, tha OapartMnt aUooatad
additional paraosnal and contractual raaeurcaa tos CD morfanisa tha
inatitutional aligibUity papar filaa, «id (2) uainf tba raorganiand filaa,
antar aiaaing data onto tha I1>S and varify aaKiating data is tha ayatas. Thia
projact, iovolwiaft tha warification of data oo a, 500 poataaeondary aducatim)
inatitutiona, wa» conplatad in January 1991. Sinca tha collation of tha
projact. virlou» approachat hawa baan utiliaad to warlfy tha acwacy of tha
data and maka corractiona vhara naca»aary. Althmigh tbara bava baan
inprovasanta in tha cosplatanaaa and accuracy ©f tha data, tha varlfication
activity continue* along with anhancasanta to tha IDS which will saka tha
inf orwation contained tharain «ora accurate and readily undaratandabla by the
varioua uaara.

tfa are currently developing an internal validation and verification plan by
vbich quality control and aaaurance checka will be aotonatlcaily parforpfted on
key IDS data. In addition, at aoon aa additional raamreaa ere in place, e
eyataa of eyclicel inetitutional eligibility renavala and •dalnietrativa and
financial racartlf icatlon will be ifflplasented to update the data on
approximately 2000 poeteecondary inetitutiont per yaar.

ERIC

344

M0U9] AOIMltrniAtlOtI

DvracTcmctf

Junt 1991

The HonoTAbXfi Js»«ft B. Thoa»s, Jr.

U.S. Dvpartaent of Education
WAshin^ton, O.C. 20202

0«ar nx, Thonas;

when you testified nay 29* 1991 before the Coawittee on
Education and Labor Subcomaittee on Fostaecondary Education, X
•^aa unable to atk you the follovin^ very important questions.

On page 22 of your written ttfftivony, you said that the
Departaent'a sajor source of inforatation is the guarantee
agency tape du«p and that you question the accuracy of ao«e of
the data in it. Rov inaccurate is this data and is this the
data that vill be the bacJIbone of the fiational Student Loan
Data Systes? Alsc/, if this is the caser is there any i^ay to
correct this data nov before we end up with a uselesa aystea
that iff riddled vith aisinfofsation?

Your cooperation and ptonpt attention by replying to these
questions by June 17, 1991 is greatly appreciated.

Sincerely,

Joseph H. Gaydos
Rember of Congress

345

UNITED STATES DEPARTMENT OF EDUCATION

orrtct OF iKSFrcTow ocfrtfiAL

Honorabitt Joseph H. Caydos 9
8ous« of Heprttsentatives
washio^ton, D.C. 20515

D*ar nr. Caydos:

Thm following responds to your recant request tor further
information regarding statesents contained in ay May 29, 1991
tttstlBony before your subcomittee. Specifically, you asked
for our views as to the level of inaccuracy of the guarantee
agency tape du»p data and whether there are ways to correct
this data before it is used to support the National Student
Loan Data System (NSU)5) •

Although we have done sose analys«*i of tape duap data, we
currently do not have a full assessment of the data accuracy.
Hovevar# ve have reported on sosie specific data inaccuracies,
stich as invalid s^ial security numbers, is^ssible dates, and
illogical field values. In addition, our discussions with
program staff responsible for the tape dusp^ and our own
analysss of tape dump data to provide information for planning
and performing audits, investigations and inspections, have
disclosed other discrepancies in important tape dump fields.
Having noted these inaccuracies, and recognising that the tape
dump will be the starting point for many guarantee agencies
developing their initial input into the National Student XA>an
Data Sysreo, we initiated an audit in December 1990 to review
the tape dump edits and accuracy and make recommendations for
improvements where appropriate* To be certain that we were
auditing the most current data available, this audit was put on
hold until the Dttpart:ment performs edit checks and basic
analyses of the 1990 tape dump. It is anticipted that this
will be completed in July or August of 1991.

Also, the recent Education/Office of Management and Budget
Management Study has highlighted the problem ot data
inaccuracy. The Department is currently working toward
providing better systems and data for control and
decision-making and released a document in April 1991,
"Improving Guaranteed student Loan Management: Blueprint for
Action,* that addresses steps it plans to take in this regard-
The importance of the reliability of the N5LDS is also one of
the major topics currently being discussed by the members of
the Student Financial Assistance Data Users i*roup during its
discissions of the requirements for the NSLDS*

tfe believe that one step the Department can take to ensure the
accuracy of student loan data is to require that annual/
biennial non-Federal audits of guarantee agencies examine the
reliability of the data. We are currently working to see that
this axidit objective is specifically included in the compliance
supplement prepared for the conduct of these audits.

346

Tor spvcific datails on th9 accuracy of tha taoa duap ami for
infonation m hov tJi* Papartsant la vorkii^ tovard anaarin^
tHa accuracy of tha va auggaat you contact MichaaX J»

F^vrall , Acting Aaalatant Sacratary for ^>atsacondary
education , who haa diract raaponaibility for thoaa araaa.

tta hopa thia inforsatim ia halpful* Should you bava furthar
quaationa. or if va can ba of aaaiatanca in any othar way«
plaasa call ne or Jia Borchaa of ay ataff on 732*4068.

cc: Kichaal J, Farrall

Actina Aaaiatant Sacratary
for Poataacondary Education

Mil lias Hanaan
Acting Aaaiatant Sacratary for
Lagislation and Congr^aaional Affairs

Slncaraly,

347

dnmress of tbt ttsitd S^tatts

June 5f 1991

Lftvrenc« 8. Thoapson
Atsittant Cosptrollsr General
for RuMfi Resouccv Programs
U.S, 0«n*r«l Accounting Office
wnshington, D.C 20548

0f«r Ar. 7ho»pson:

i»h«fi yow testified My 29, 1991 before the Subcowiittee on
rofttsecondary Education, I wet uneble to ask you the following
v»sy inpostant questions-

Is it possible for the Dvp^rtsent's financial records to be
put in an audi table condition? if so, how long do you think
it will telle before Congress receives an audit of the student
loan inavcance fvnd?

Your cooperation and pro»pt attention by replying to these
queations by June 17, 1991 is greatly appreciated.

Sincerely,

Joseph fi, GaydOB
naaber of Congress

Or: 1

ERIC

348

Wiateigoa tow

91-1283

The Honora£>le Joseph Gaydos
House of Representa 1 1 sres

Dear Hr, Gaydos:

This IS xn response to your June 5, 1991, letter reqardin^
my recent test iniony before the House Su£>comm] ttee on
PQStscH:onddry £dacatiQn on vrul neraoi i 1 1 les in the Stafford
Sti^ent Loan Program. Vou asked wnen the Department of
Education's records ^i«>uld be in a condition for an audit of
Its Student Loan Insurance fund, and when tnat audit would
t>e available for the Congress.

As you may Know, over the 25-year history of tne Fund, we
nave either issued an adverse audit opinion of the fund's
financial atateraents or declined to is&u« an opinion
because of the poor condition of the Department's financial
records. Many of tne conditions causing us to issue such
reports continue. The Secretary of Education, in his X99^
Federal Managers' Financial Inte9rity Act report r
acftnowiedged tnat serious deficiencies remain in the fund's
linancial siana^^ewnt syst^sms, and that auditaDle financial
statejnents still cannot oe produced*

are wor<incj with the Deparc.^nt to develop a oalanCe
Sheet tnat accurately reflects the Fund's financial
condition at Septemoet 1991. Once the statement is

prepared, we wi 1 1 conduct tne audit and anticipate
reportinq to tht? Congress oefore tne end of fiscal year
1992.

Our Accoantin*^ ^nd Financial Management Systems Divi3i>^n 15
conduction the audit. If you wish to discuss our work
further, please contact Hr . Donald Wurta, Director m
cnarqe of tnis assignment, at i2d2> ^7S-9449,

.Sincerely yours,

Lawrence M» Thompson
Assistant "omptroller General

ERIC

349

UNiTRD SXdXSS OTWUlTMEIfT OF SDUCAHON

Horarabto ^iwt Oundmon ^
Sitejnmttn on PMMOondvy EdmOon

Wi i W» tfp n .DC aOBIMSOS
Omt Mr. QundMBonc

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• « iWKirrfBonil fcr «» p«po«i «<«»■ NCEB «id|f.

IJ«M iht •nPy »d d*iy»d pre»«i*» drtk«on^ NCK^

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■tudan. 44 pasatt of il prMi 4imr audam aid 04 pafl«« of li
■tudanailf

ERIC

351

or"''

BHRoujiBiT or 'MHt-nuDimnnii" vosfSMComaaa smmrs

rail 19B7

ntel

3.333,945
1,355,535

1,033,639
405,400

3,357,100
3,343,934

4,941,094
9,433,300

4,190,071

1,930,043

9,710,114

9,973,394

Prlvato 3-|mr
Private 4-y«Ar

00,335
•«i»MO

33,994
153,197

103,330
1,133,303

339,150
3,990,330

1,041,411

199^191

1,335,503

3,793,300

All inBtitaUm

9, 331 1 403

1,709,334

5,935,715

13,755,542

Sooroat MCBS 1990 Oioovt of Unaticm Otatistioo, Tobio 151

HEARING ON THE REAUTHORIZATION OF THE
HIGHER EDUCATION ACT OF 1965

THURSDAY. MAY 30, 1991

House of Rkpbbskntativks,
subojmmntee on postsbcondary education,

COMMnTEE ON EDUCATION AND LaBOR,

Washington, DC.

The subcommittee met, pursuant to call, at 9:45 a-m.. Room 2175,
Rayburn House Office Building, Hon. William D. Ford [Chairman]

presiding. _

Members present: Representatives Ford, Hayes, Lowey, Serrano,
Andrews, Reed, Roemer, Coleman, Molinari, Petri, Gunderson, and

Henry. , , ,

Staff present: Thomas Wolanin, staff director, Jack Jennings,
education counsel; Maureen Long, legislative assistant; Gloria
Gray-Watson, administrative assistant; Jo-Marie St. Martin, minor-
ity education counsel; and Beth Buehlmann, minority education co-
ordinator; and Rose DiNapoli, minority profiessional staff member.

Chairman Ford. I am pleased to convene the Subcommittee on
Postsecondary Education for its 14th hearing in a series of 44 on
the reauthorization of the Higher Education Act. Today is our
third hearing in a series of three which addresses one of the nwwt
crucial issues we face during r^uthorization— the integrity of the
Federal student financial as s i s tance prc^ram.

We have before us today witnesses representing State guarantee
agencies, the State approving agencies for Veteran's Administra-
tion programs, the State higher education officers and the Council
of Postsecondary Accreditation. . „ , « e

Today we also, at the request of Representative Paul Henrv ot
Michigan, have a panel of witnesses to address the issue of college
athletics financial disclosure and public aowuntability.

I look forward to hearing the comments of our witnesses, and I m
hopeful that these hearings wiU bring forth suggestions for sup-
porting public confidence in our student financial affiistance pro-
grams. t_ *- 1

Would you gentlemen like to come forward for the first i^el:
Don Sweeney, L^islative Director, National Association of State
Approving Agencies, Augusta, Maine; Joe McCormick, Ex^taye
Director, Texas Guaranteed Student Loan Corporation, Aiwtm
Texas; Dr. Samuel Kipp, Executive Director, California Student
Aid Commission, Sacramento, California; Dr. David Lon^ecker,
Executive Director, Colorado Commission on Higher Education,

(353)

o 35:)

ERJC

354

Denver, Colorado; and. Dr. Thurston E. Maxming, President, C!oun-
cil on PoBtsecondary Accreditation, Washiiuzton, l)C.

Without objection, prepared remarks of each of the witn«»es
wiU be inserted in full in the record immediately following then-
oral comments.

And, without objection, Mr. Gaydos' opening statement will be
inserted at this point in the record, before we hear from the wit-
ne^es.

[The prepared statement of Hon. Joseph M. Gaydm follows:]

Statehent or Hon. Jossm M. Gaydos. a IhcpsBSKNTAnvx in Conobsss fbom the

State or Pennsylvania

At the past two subcommittee hearings, we have hrard e»tremely distressing tes-
timony questioning the inttwrity of the student assistance programs.

Although rm sure we will hw more Imd news today, I would like to point out a
little good news— no one, at any the hearings, has said that the assistant pro-
grama are beyond repair and no one has suggested that these programs be diaccmtin-
ued.

Everyone seems to recofpiize that these progranis are very important to improving
the qualify of stuitents' lives and the lives cJ their families. And. some of the wit-
nesses we beard rarlier this month recognize that the survival of these programs is
also es^tial to ensuring that we, as a Nation, have a weU-qualified workforce and
that our worirfbrce ran compete with those of other countri^.

I would like to thank the Chairman for devoting 3 days of hearin|ps to program
int^rity. The perception of the pn^rams in general ana how effectively they are
managed will have a direct impact on future n^rings when we deal with each of
the |Ht)gram8 in the Higher Education Act of 1965.

Chairman Ford. And we'U start with Mr. Sweeney.

STATEMENTS OF DON SWEENEY, LEGISLATIVE DIRECTOR, NA-
TIONAL ASSOCIATION OF STATE APPROVING AGENCIES, AU-
GUSTA, MAINE; JOE MCCORMICK, EXECUTIVE DIRECTOR.
TEXAS GUARANTEED STUDENT LOAN CORPORATION, AUSTIN,
TEXAS; DR SAMUEL KJPP, EXECUTIVE DIRECTOR, CALIFORNIA
STUDENT AID COMMISSION, SACRAMENTO, CALIFORNIA; DR
DAVID LONGANECKER, EXECUTIVE DIRECTOR, COLORADO
COBfMISSION ON HIGHER EDUCATION. DENVER COLORADO;
AND DR THURSTON E. MANNING, PRESIDENT, COUNCIL ON
POSTSECONDARY ACCREDITATION, WASHINGTON, DC

Mr. SwsEim. Mr. Chairman and members of the subcommittee,
thank you for the opportuni^ to address the topic of int^frity of
the Federal Title IV student financial assistance pn^rams and how
State Approving Agencies have addressed this topic m the adminis*
tration m Gl biu educational assistance prc^rams.

Let me begin by providing some bacl^round information on
State Approyu^ Agenda, how they came to be and the natiuie of
their responsibilities.

Followmg the enactment of the World War n GI bill, Congress
and the Veteran's Administration recognized the need for an effec-
tive approval proross to help curb abuses in the new program.
ScrupuToiis schools were beginning to ^ up shop on every street
comer in order to attract veterans and the educational assistance
dollars available to them.

During their deliberations, members of the Congr^ determined
the Federal Grovemment was not l^s^ly nor organizationally, in a
position to perform educational approval functions; thus, the birth

355

of State Approving Agencies with general guidelines provided at
the Federal level to insure stabUity and consistency of operations
throughout the country. ... ^ . ^

SeSon 1771 of Title 38, United States Code, is the statutory pro-
viirion Uiat provides for State Approving Agencies, either by btate
law or executive appointment. .

The primary responsibaity of a State approving agency is to
evaluate, approve or disapprove, and subsequently monitor or su-
pervise approved pn«rams of education and training. Let me em-
phasize that evaluations occur at the program level at accredited
and nonaccredited educational institutions, at main campuses and
branch sites, and at job training establishments.

Results of a State Approving Agency's evaluation are forwarded
to the Department of Veteran's Affairs so that the department can
pay or not pay, whichever is appropriate, educational assistance
benefits to veterans and other eligible persons. ^ ^ , .

State Approving Agencies utilize Federal and State lawB and reg-
ulations and private sector standards in evaluating eduiwtjonal
proSSLTt Sie Federal level. 38 CFR 2140-53 and> CFR 2142-
54 provide the general approval criteria for evaluatmg programs
offered by educational institutions. n

These criteria cover a wide range of items. Some are specifically
program oriented, while others focus on the policies and practices
of an institution. , ^ a

Let me now describe in greater detail how State Aoproving
Agencies, how a State Approving Agency pro^. "*fLVf ^t^oIIT
hwice the integrity of the administration of Federal Title IV stu-
dent financial assistance programs. „„,^™,o

State Approving Agencies are organizationally located m various
State departments or agencies. Most are in departments of educa-
tion or higher education. They employ personnel with educational
backgrounds and experiences and, when needed, call upon the ex-
pertise of others in State government or the industry to assist them
m making determinations about the approvability of a program oi

education. , i

State Approving Agency process centers around on-site annual
reviews or evaluations at the program level. Some specific exam-
ples of program related items that are evaluated are curnculum,
instructional methods, equipment and fadlities, administrator and
instructor qualifications, admissions policies and practic^, P««^
standards, graduation requirements, policies for awarding credit
for prior learning, and attendance policies. :„^i„jo
Some other items that are more institutionallv oriented include
advertising, tuition, refund policies, and financial stability. It is im-
portant to note that State Approving Agencies have the a"thoi^
to apply nonaccredited and/or additional cntena to accredited pro-
grams should it be warranted by the circumstMces.

Throughout the applicaUon and expansion of these cntena. State
Approving Agencies help to prevent schoote from: (1) attractmgand
enrolling students from misleading and false advertasmg; (2) accept-
ing students who are not academically prepared to benefit f«>m the
ed&cational program in which they wish to enroll; (3) enrolling rtu-
dents in programs where either the curnculum, methods of instruc-
tion, equipment, facUities, student counseling or other program re-

o 3r>i

ERIC

356

lated factors are not adequate; and (4) keeping students enrolled
who are not pn^ressing satisfactorily through their educational
program.

More importantlyt State Approving Agencies through their work
with educational institutions, help veterans and other eligible per-
TOM receive the quality aiuration that they desire and deserve-

Although it may have just sounded so, let me mention State Ap-
proving Agencies are not perfect. However, over the 40 TOme years
of our existence, primarily through the National As^Kiation of
State Approving Agencies, we have worked to perfect State Ap-
proving Agency pnx^ss and have received support from the Con-
gr^ and the Department of Veteran's Affairs to do so.

In order to bring about a higher level of effectiveness and ac-
countability, Public Law 100-323, enacted in May of 1988, called for
the development of National State Approving i^ncy performance
standards^ minimum personnel qualification standards, and a na-
tional training currictilum.

The first two have been developed and implemented. The devel-
opment of the national training curriculum was finalized within
the week and is expected to be available for use by the end of
Aiigust.

Td like to clMe with three other pomts. The first is that State
Approving Agencies rerve as a single coordinating point for the De-
partment of Veterans Affairs in ^tablishing institutional and pro-
gram eligibility for {^rticipation in GI bill educational assistance
progranas. They operate under a contract between the State, their
State, and the Department of Veterans Affairs* The total budget
for this activity for Federal fiscal year 1991 is $12 million.

Second is that another signifirant difference between the admin-
istration of GI bill educational assistance prc^rams and the pro-
grams administered by the Deparbnent of Education is the distri-
bution of funds to students* GI bill benefits are i^d monthly to the
recipient, and only after continued enrollment and satisfactory
prcqipresB has been reported.

Student financial assistance grants and loans, on the other hand,
are paid in lump sum amounts to the institution or student, in
most cases, and generally at the b^inning of a term. For most of
the student financial assistance prc^ams, the Department of Edu-
cation has limited direct control or indirect control through guar-
antee agencies to withhold i^Qrments on a prorate basds or to
recoup funds recently awarded.

The last and final point is that members of the National Associa-
tion of State Approvhig Agencies believe that the State Approving
Agency process used in the administration of GI bill educational as-
sistance prq^rams can serve as a viable model, in whole or in part,
for emulation by the Department of Education to enhance the in-
tegrity and the effectiveness of the administration of Federal Title
IV student financial assistance programs.

The first step would be the construction of lan^age for a single
coordinating agency in each State and the development of national
standards by tJie United States Congress in coigunction with other
concerned parties.

357

Please let me emphasize that the implementation of an equiva-
lent process could only be accomplished with the financial support
of the Federal Government through payments to States.

The necessary funding level would be primarily contingent upon
the level of State responsibility for assisting the Department of
Education in determining institutional eligibihty for participation
in student financial assistance programs and, secondly, the eMS^
ence or extent of a monitoring or supervisory role at the btote
level, especially expanded beyond the level of insuring the quality
of educational programs through conductmg fiscal audits.

Mr. Chairman and members of the subcommittee, thank you for
the opportunity to address the topic of mtegnty m Uie F^eral
Title IV student financial assistance programs and to describe the
role of State Approving Agencies in administermg GI bill pro-

^'Twiil be pleased to respond to your qurations. Thank you.
[The prepared statement of Don Sweeney follows.]

oh J

ERIC

358

NATIONAL ASSOCIATION OF STATE APPROVI{IQ AQENCtES, INC.

■e aar.

FS MM» tf«t 3c PiiKN»

^nrmSpM' a<Sj«»«*'fl &u.«fia>

KMM.fi A. KiSWil.

MOMiVT A nuivm.

OAMtUACOO^H.

STATEHOIT IW
THE RCCORD Bf
C. OOHAID SWEENEY
UfilSLATIVE DIRECTOR
HATIONAl ASSOCIATIOI Of STATE ^f^VING AGEHCIES
KFORE THE
SUBCOmiHEE W POSTSECONQARY EDUCATICm
imiTED STATES HOUSE OF REPRESENTATIVES
NAY 20, 1991

Nr. Chilnun and vmbers of the Subcomtttee.

Think yoM for the opportunity to ^^ress the
topic of int^rlty in the Federil Title IV student
financial assistance prograas and hov State Approving
Agencies have addressed this topic In the
adjBlnlstration of Gl Bill educational assistance
prograJBS .

Let iae begin by providing soae background
Infonoatlon on State Approving Agencies; how they cane
to be and the nature of their responsibilities.
Following the enactment of the World War 11 Ql 6111,

ERIC

i^EST my AVAILABLE

359

Pige 2 of 7

thi Cwmress «ml tlw »«t«r«ni JUtalniitritlon rteoflnliMl tht ne«l for «
•fftctlw approinl proctfs to help curb ibusis In tht tm pngrn.
Unicnipulo«i schools wro bealnn^ng to sot up shop on twtrjf strttt com«r in
ordtr to attract vtt.rins and th« wlucitional assistance dollars milaMe to
the*. Ourlnfl their deliberations, iwOers of the Congress detomlned that the
federal uownwent MS not lesallj nor organliatlonally In a position to
perfori educational approval f«mcti«»Si thus, the birth of State Approvii^
Agencies with general juldelines provided at the federal level to Insure
stability and consistency of operation throuahout the country. Section 1771 of
title 38, toited States Code, is the statutory provision that provides for
State ^provin^ Agencies either bv state law or emutive appointaent- Uopy
attached)

The prisary responsibility of * Slate Approving Agency Is to evaluate,
approve or disapprove, and subsequently Bonitor or supervise approved programs
of education and training. Let w asphastze that evaluations occur at the
progran level; at accredited and nonaccrtdited educational institutions; at
Mil, ca^Hises and branch sites; and, at Job training establishsents. The
results of a State Approving Agency's evaluation art forwarded to the
OepartMflt of Vat«»-ans' Affairs so that the Depart^nt can pay or not pay,
whichever is appropriate, educational assistance benefits to veterans and other
eligible persons.

State Approving Agencies utilize federal and state laws and regulations
and private sector standards In evaluating educational program. At the
federal level. 3B CFR 21.4253 and 38 CFR 2J.4254 provide the general approval

360

Page 3 of 7

criteria for evaluating prpgravs offertd bjf Bdycttl^al Institutions, (copies
attached) These criteria cover a wide r«^ of 1te»s; som are specifically
progras oriented wlille others focus on the policies and practices of an
Institution. Before elaborating on these criteria and other factors uhlch have
the potential to help enhance the Integrity of the adiilnlstratlon of the
Federal student financial assistance progrMs, it seews ii^rtant to develop a
context for these re«arks.

Recently, wch has been said and witten about the ulsuse of public funds
Intended to provide support for students pursuing postsecomiary education.
Host of the ccMnents have been al»ed at the Federal student loan programs^
either because of the actions of participating educational institutions or
their students. The conclusions that have been drawn seem to center around the
fact that there are fumdanental probl^ with the processes for (l) detensining
institutional eligibility for participation in Federal Title IV student
financial assistance prograss and (?) ■onitoring participating Institutions to
Insure that students receive positive outcoaes frw their educational
experiences, to include opportunities for enployioent at a level where they will
be able to repay student loans. 1 think it is important to note that the basic
concerns about the student loan prograss ray carry over into all other forms of
Federal Title li student financial assistance and that these possibilities and
their iB^)act also should be addressed by conaittees of the Congress, agencies
of the Executive Branch and the higher education cwaminity as a whole.

0{» : *
U

361

Page 4 of 7

As m knw. the currtnt for tfettmlnlng 4n$tHutlon«1 tllg^bOUy

is M^ristfl of $t»te Hcwisum, private lector eccrvdltatlim a»d the
Oepartaent of Edvcation certification process. coMonljr referred to as the
triad. Several studies and reviews over the cottrse of the last few years all
se«9 to Indicate that state licensure Is very disjointed* fr^wentedp
tmderfimded and generally not coordinated at the state level. The
accreditation process, although prograawatlc at t1»es, Is ordinarily
Instlttttlenal and Is coosprlsed of voluntary peer reviews or evaluitlens thit
generally occur several years apart. The Oepirt^ent of Education's
certification process plices heavy eaephasls on the outcones of tt» first two
components <

1 would now lUe to return to describing hwi a State Approving Agency
process «ay help to enhince the Integrity of the wtalnlstratlon of federil
Title IV student financlil assistance prograas. State Approving Agencies are
orgmizationally locited In various Stite depirtfl»nt$ or agencies, Dost are in
Departments of Education or Higher Education. They employ personnel with
educational backgrounds and experiences and, id»en needed, call upon the
expertise of others in State govemsjent or the Industry to assist tbeo in
naMng deterwl nations about the approvability of a program of education. The
State Approving Agency process centers around on-site, annual reviews or
evaluations at the program level. Swoe exafiaples of specific prograa related
iteas that are evaluated are curriculum, instructional methods, equipment and
facilities, administrator and instructor qualifications, admissions policies
and practices, progress standards, graduation requir^nts, policies for
awarding credit for prior learning, and attendance policies. Some other ite^s

362

Page S of 7

tliit art aor* tnstltutfofiiUy orltnted include «dvtrtU1n9, tuUlon, refund
pollclts. and finwiclal staMlny. It Is lipertant to nott that Stato
A^rovlng Agtncies hav« ttm aotttorUjf to a^ljf nonaccredlted and/or ackSltlonal
cr!tfria to accredltod 9ro9fiBs, should It be warranted by ths circumstances.

Throttghput th« application and txpanslon of these criteria. State
Approving Agencies Nip to prevent scfwls fro* (S) attracting and enrolling
students through Misleading and false advertising-, {Z) accepting students nrho
are not acade«1ca11y prepared to benefit fro» the educational prpgraa In which
thejf wish to enroll; (3) enrolling students In progress where either the
currlculua, aethods of Instruction, e«}ulp«ent. facilities^ student counseling
and/or other progran related factors are not adequate; and, {#} keeping
students enrolled who are not progressing satisfactorily through their
educational progrt«. Itore l^rtantly. State Approving Agencies, through their
work with educational institutions, help veterans and other eligible persons
receive the quality education that they desire and deserve.

Although It nay have Just sounded so, let me also loentlon that Stale
Approving Agencies ire not perfect. However, over the forty sooe years of
existence we have worked, pniaar'ly through the National Association of State
Approving Agencies, to perfect the State Approving Agency process and have
received support fro« the Congress and the Oepartaent of Veterans Affairs
to do so.

ERIC

o . Of

363

P«9« 6 of 7

in orrftr lo bring ibput a hlsher Isvil of tffoctlwness ind
•ccountibnity. FHibllc XW-323, Wicttd in of cilltd for the
4m1oymnt of mtloiwl Statt Ap^vlnf Agtncy p«rfor»tw;e »tandard$, minimm
ptrsofintl Vilification standard* and a national tri1n1n9 cyrrlculua. The
first two hM been developed and iin>1ea»nted. The develi^nt of the Katlonal
Training Cerrlculim win be finalized within the week and Is ejcpected to
available for use by the end of August,

I would like to close with three other points. The first Is that State
Approving Agencies serve as a single coordinating point for the Departoent of
Veterans' Affairs In establishing institutional and progrwi eligibility for
participation In the 61 Bill educational assistance programs. They operate
under a contract between their State and the Departwent of Veterans' Affairs.
The total budget for this activity for Federal Fiscal Year \m Is 112 Billion.

The second Is that another significant difference beti^en the
adnlnistratlon of the 61 Bill educational assistance progrwJS and the programs
administered by the Departsent of Education 1$ the distribution of funds to
students. 61 Bill benefits are patd «>nthly to the recipient and only after
continued enrollment and satisfactory progress has been reported. Student
financial assistance grants and loans, on the other hand, are paid in lump sum
amounts to the institution and/or student In oost cases and generally at the
beginning of a tenn. For most of the student financial assistance programs,
the Oepartoenl of Education has liitilted direct control or indirect control,
through guarantee agencies, to withhold pay^wnts on a pro rata basis or to
recoup funds recently ai^arded.

Pige 7 of 7

Th0 last ami final point is that venters of the national Association of
State Approving Agencies believe that the State Approving Agency process used
In the adalnl strati on of £1 8111 educatltmal asslstai^e prograas can serve as a
viable iwdel. In tfhole or In part, for emilatlon by the Departnent of Education
to enhance the integrity and effectiveness of the adslnlstratlon of Federal
Title IV student financial assistance prograns* The first step iiould be the
construction of language for a single coordinating agency in each state and the
developaent of national standards by the United States Congress In conjunction
with other concerned parties. Please let «e ea^haslze that the iu^leiBentatlon
of an ea^ilvalent process could only be accomplished with the financial support
of the federal govemn^nt through payments to states. The necessary funding
level would be primarily contingent upon the level of state responsibility for
assisting the Department of Education In deterwlnlng institutional ellglbllUy
for participation In student financial assistance prograns and* secondly* the
existence or extent of a foonltorlng or supervisory role at the state level,
especially If expanded beyond the level of ensuring the quality of educational
prograos to conducting fiscal audits.

Hr, Chalman and s^nbers of the Subcoflsnlttee, thank you for the
opportunity to address the topic of Integrity fff the Federal Title IV student
financial assistance programs and to describe the role of Stat ^proving
Agencies in administering CI Bill programs. I will be please^. ^ respond to
your questions.

365

§ 1771. Dcsignalion

(a) Unless otherwise established by the law of the State con-
cerned, the chief executive of each State is requested to create or
designate a State department or agency as the "State approving
^ agency" for such State for the purposes of this chapter and chap-
ters 34 and 35 of this title,

(Added RL. 88-126, § 1; amended PX. 89-358, §3(aK6); PX. 92-540,
§ 403{2^, P.L 94-502, § 513(aXl).)

(bXD If any State fails or declines to create or designate a State
approving agency, or fails to enter into an agreement under section
1774(a), the provisions of this chapter which refer to the State ap-
proving agency shall, with rrapect to such State, be deemed to refer
to the Administrator,

(2) In the case of courses subject to approval by the Admnnstra-
tor under section 1772 of this title, the provisions of this chapter
which refer to a State approving agency snail be deemed to refer to
the Administrator.

(Added P.L. 88-126, § 1; amended PX, 100-323, § 13^b).)

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pte^fTTU rrquind ol uw fiudrm Thr

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coiidiMt AM (tnifirad.

ifi T¥» Khool conptSM vtth all
tecsi. c^r. oci«iA4r. HMdk^pU. Suu
Md TMrrs} rrsutdlMioa. »» fis*
rodra. buUfii^. »«d laoadlion cwte»
Thf S4dld ftpprmlPt accorr aajt rr
jMtf<wcJi ondroct cw p ti a w* *• w

tf» Ttw arhod) ti fiftdnctaUf aound
•Ad Ol fuSmUnt tta eo»mH;

iDMtu f<» UibxtsiA y

ttoi TtM fOiool doc* noi uumt ad
TTfi tMT ^ of aoy tj/pt •hicb ia «m«>e
«u Of mliVarttiiK. aUlttf tty *nuat
it«t«oma, omlaaloo. or ttrtimaiioo
T*tf achoi^ »m noi ^ de«ofd U» haw
met ttUa ivQutrrflntM tioOi U>« «UW
ai^mtdd accfser

IM Hdo Mcottdtmd fraa UM FMrr»l
Trade Comimatlon mhritm Um eom-
muakm (mm U*8«d an ordt* (o um
reboot to ecMT and diaM lr«M aor •'^
Of pracilec. and

4b> Haa. If weti an ordar hu brm
tevrd. (iMi>do« v#t(hi lo ihat laei

liJj TlM Mbool do« nci taoMd {l»
•nroilmmi tlmnatKwa »» f»Mrf»*li*>*d
t>y thr fUate approvUtf aavfKj

n2> Thr arhool adjulntouaim. d»
rwisf*. o«nrri. and IfiMrwrtor* art ol
|M»d rrrmiauon and ctwaetrr.

lUi Th* achoe4 njhrf Hm and
pvAiotAtftt a pottoF tor iht »rtj ravi
rrfuRd ol l^« wnuard portK»( of 4ui
twfi and charfM iJ in* %#i«»n or
Ohcttiif pc"or» fiiti to miff tJM" four**
<w *i|^itnw» Of tti dofoounu*^ tfom A
UfPff cwR«leVi»n. or

niD Mai oliuUncd a wiMwr of into rt
Qutrttnent Sot 1 21 «9U
>*.»a>«rRr MUAC trr«i

>M> Such addtUonat ri>a»of)atif cri
trria ai t-w dtwtf nerr*i*/| ^
tht Suit approttnf as«m>

.*oirwrnr MUSC iTra-r'f

in j^nt at IMt <1 PR 421» 6f pt

37:.

368

Chainnan Fobd. Humk you.
Mr. McConnick.

Mr. McCtHoacK. Mr. Chainnan and members of the subcommit-
tee, thank you for the opportunity to appear today to talk about
the subject of pnwram integrity m the Title IV student aid pro-
grams. 1 would ask that you acce^ my comments as my own per-
sonal a>mments and not uie position of the corporation I represent,
but based on my 25 yraxs of experience in the student aid business.

I heard the testimony given yesterday, and I altered my remarks
to try to put in rome perspective, in my view, why we are here
today to talk about prcwram integrity.

Ifeel that in the 19§0b there were dramatic chan^ to the stu-
dent aid programs that affected program integrity. Some of these
changes were mandated by Congr^, others by the Department of
Education. But other changes to our socieb[ and our economv col-
lectively placed a severe strain on the ability of the Federm pro-
grams to serve needy students.

Program integrity is vital to the continued success of the student
aid prMcram. And that's r^ht; I said suo^ of the student aid pro-
gram. We must be clear on what the real threats to pn^ram int^
rity are.

I will share with and the committee my personal views on what I
perceive to be those Uireats, the recommenclations that I feel the
committee should review in the reauthorization.

The first threat to the program integrity, to me, is the Fedeml
bucket process that Congre^ -s unfortunately coping with in the
198% and through the 1990s. I simply would point out that many
of the chai^ies that have been made to the programs over the past
10 years were made as a result of budget targets that had to be
met by budget deficits. They were not made to improve program
administration. They were not made to expand ao^ess to unancial
aid. And, unfortunately, we're now seeing the native effects of
those changes.

Secondly, and a topic that has been talked about a great deal,
the increase in the student Itxai defaults. Many of the changes that
were made to the law in 1980 now are being seen in the form of
$2.7 bUlion a year in student loan defaults.

A third threat to pn^s^ram int^^ty is fraud and abuse. Although
we were sharply critici^ for it, we were one of the first guarantee
agencies to speak out loudly and aggreasively against the prc^am
reviews that we experienced in the late 1980s and, I am sad to say,
to «xme d^pree still exist today in the programs.

Number four is program complexity and student aid delivery. We
have, unfortunate^, I think, in our enthusiasm to insure that Fed-
eral dollars go to the intended target populations of eligible stu-
dents, creat^ a h^hly complex syitem of need analysis and stu-
dent aid deliv«ry that is very difficult for people to understand and
to cope with.

I can honestly remember, Mr. Chairman, sevei^ ywirs back
when you could explain needs analysis to a family and they would
understand it. And, unfortunately, that is not the case today.

To me, the fifth threat to the integrity of the student aid pro-
grams, as I perceive their purpose and goal, is the exclusion of the
middle class from participation in student aid. If the trends of the

369

1980s continue into the 1990s, I feel that we will create a system of
student aid delivery in which only the very poor and the very rich
can afford to attend college.

In order to re^re piwlic ronfidence in these pn^prams and to
maintain tl» high standards of program integrity, I would submit
to the committee the following recommendations.

Under the cat^ozy of defaulted student l(»ns, I would ask the
committee entertain l^islaticm to provide performance based re-
lations in the collectitHi of loans insteiui of the current compliance
based due diligence regulations we now have. The current incen-
tive is to com^y with the law. We need incentive to collect Itmxa

from students. . _^ ■. ^

Seomdly, enact l^gi^tion to front load grants to needy students
in their first 2 years of college and not allow borrowing during the
first 24 months of their wBteecondary education. This one change
could have a dramatic effect on student loan defaults and more ef-
fectively encourage postsecondaxy education partici^tion.

Next, all guarantee agencies should share some nsk on the guar-
antee of the loan and rraponsibilitv for reducing defaults. A new
schedule of reinsurance ^ould be developed which provides incen-
tives to all agenda to reduce defaults, but which does not penalize
guarantee agenda that served high ri^, low in(»me populations.

Fraud and nbuse: Ck)ngresB should enact l^islation to require the
Department of Education to develop regulationp that reward Mod
partidpation in this prc^ram, good performance. Schools, lenders
and other partidpants that carry out the purposes of the program
should be treated differently from schools and lenders and others
that do not. Treating all partidpants exactly alike in all ways m
costlv and ineffective, and the department should have a different
rnniiatory process.

Next, remove accreditotion as a Mrt of the process that schools
complete to be certified to receive Federal funds. The Department
of Education must determine the standard, the criteria, for schools
receiving Federal funds and enfbrce it. , *

A recent sttuiy by the Inspector General s office mdi<»ted that
during a 4 year period in the late 1980s, over 2,000 institutions ap-
pliedfor eligibility for Titie IV assistance, and only 60 applications

Next, I would require minimum standards, Federal standanls,
for the Stete licensure of schools who wish to partidpate in Title
IV, The Federal Government, in a variety of other programs, has
provided standards for the Stetes to comply with in order to re-
ceive FWeral funds. And I think student Ctnancial aid should seri-
ously omaider a similar approach. , J

Under the threat of program complexity, I would recommend
that you give full support to the recommendations of the Advisory
Committee on Student Financial Aid, of which I've had the pl^
ure of serving these past 4 years in the following areas: integration
of need analysis models into one model; sunplimng the Federal ap-

flication for student aid; and the promotion cf the use of the free
'ederal form. Personally, I would go further and require the use of
the free Federal form for all Title rV student aid.

Next, require the use of the simple needs test for all who qualify.
Low income families should not be subjected to a battery of useless,

377

370

unnecessary questions simply in order to feed the revenue stream
a need analysiB processor.

And, finalfy, the middle dasa student should be brought Imck
into eligibility for the program. Eliminate the calculation of hon^
equi^ from Uie calculation of need analysis in order to qualify for
aid. It is unfair to pnalixe families who have for yrars worked
their lives to simply nave a decent home and a mo^st income.

Reexamine, if you will, Mr. Chairman, the Mi^e Income Stu-
dent Assistance Act of 1978. It was good law then, and it's good law
today.

In summary, these programs must have the confidenoe of the
American pubUc in order to survive. We must restore that confi-
dence because this pn^^ram is far too important to fail* We've edu-
cated an entire generation of Americans. We've given this countiy
doctors^ teachers, mechanics, plumbers and nur^. We've produced
taspaying citizens who are now sending their children through
higher education*

This reauthorization must make this pn^ram fair, understand-
able, reawnable, and as free from fraud and abuse as possible. The
ultimate test of the int^rity of the Federal student aid pn^rams
will be whether or not, in i^e minds of the American people, we
are su^^muI in delivering the American dream that these pro-
grams promise.

I thank you for the opportunity to share my thoughts with srou,
and would be glad to answer any questions you may have.
[The prepar^ statement of Mr. Joe McCormick rollows:]

871

Written Testimony

SukNnltted bf Joe t. McCormicK
President

Texas Guaranteed Student Loan Corporation

to the

Committee on Education and Labor
United States House of Representatives

Sul)committee on Postsecondary Education

May 30. 1991

372

INTRODUCTION

Mr. Chalrn«n and MtintMfB of 9m S4d)cominittM, thank you tor tha
invttaUon to appaar bafon today to tettffy on tha subjad of 'Program
tntaortty" in tha Tltla fV Studant Rnandal Aid Pr^rama. My nama la Joa
McCormi^ and i am Praaidant of tha Taxaa Quarantaad Studant Loan
Corporation, t atM aarva aa Chaimian of tha Adviaory Oommtttaa on
Studant Finr.ndai Aid. It la tiMlaad an honor to ai^n ba invi^ad In tha
raauthorlzation of tha Htghar Education Act with aueh a itodicttted and
diatinguithad committaa on pottaacondary aduoation. Plaaaa aocapt thaao
oommanta at ir.y owm, baaad on 2fi yaaia of atudant financial aid axpartanca.
and not tha official f^Mhorization pniSw of tha Taxaa OtMranM Studant
Loirt Coiporaten.

During my highar aducatton wMntmnSw worH In atudant financial aid, I
hava aaan many chi^tgaa to tha fadarat atudant aid prognwna. In my own
axparianai. moat of tha changaa hava improvad aid for atudanta and
contributad to maintaining a Mgh dagraa of intagrity witMn ttta progrwna. For
thto 1 am vary proud to hava baon a part of tha good woni ttiat you. flta CongnM
of the Unltad Stataa . haw dorw to provtda aducatonal i^)portunity for all our
natlon'a young pocpla,

Tha 1980a brought dramatiochangia to tha ftudant aid pregnma Soma
of thaaa ehangat wara mandatad by Congraaa and tha Daparimant of
Education, but oihar ehangat to our aociaty and to our aconomy coilactivaly
piasad a Mvata abain on tha abUty of tha ftdaral pragrama to tti^ natdy
atudanta. Tha oi^eoma of ail thatt etamgaa » atudant M pragrama aartoutly
thntatantthaimtgrityofthapfogwnatSnowtxiala. In my taatimony. t would
iitta to ahara wflh tha Commititt my vlaw on what toma of thaaa thrtata ara and
my raoommamMiona to rtrangthan tha imaptty of tha Ffdtral Studant Aid
Prognvm. partioilafty tha Quarmtaad audant Loan Pregiam.

MoCormiolt'l

373

THREATS TO THE INTEGRITY OF THE PTOQRAM
Th» FMMAl Budfl«t ProoMt and itf ImpMt on Sttiii«n Aid

I do not pretend to h«v« «ny txpcntM In fM«r«l budfiM manure, but I do
wlih to maka ona in^rtam point w«h torn axamplat: Tha vast nmortly of
changas to tha studant aW pfogmma In tha last tsn yaars hava baan piiniariiy
drfvan by budgat cutting factors daaignad to achiava 'aavlnga In fadsral
axpandtturaa-lnoidariomaatmantiatadbw^taigata. Th« changea wore not
daaignad to improve atudant aecasa, impnova program administration, or
necaaaaifly protect and anhanoa tha lntagf«y of tha progitms. Inmanycaaaa,
tha raautts hava baan to reduea aoeaas. eompiieata pregram adminiatreiton,
and thiaatan tha Intagmy of tha program.

Wa aaa evidanca of thia aroaion of tha affacthranaas of tha atudant aid
pnjgfam whan: (1) tha purchasing power of Pell Qram has diminiahad and tha
most naady atudanta mm laly more haavUy on atudant ioana to pay collage
coaia and {2) guarantaa agency rasarvaa are saiaed by tha Oapartmant of
E^iCation cauaing saHous i^ipiehansion In the financial community about the
"certainty- that guamntore wiM always hava suffldant reserves to pay default
cWms.

Tha Alarmfng RIaa m Dafauttad Student Loana

■Hiars la no doubt that ona of tha moM sahous threata to the Integrity of the
Ouaramesd Student Loan Pro^ it the amoum of dollara paid to lendere on
dafauHadatudaniteana. In 1M3, $443.i million doUare was paw out In defaulted
cWma and in Just seven ahort yaare the total Nd rtaan to over $2 binion dollaf^
paWout)nflacaly<sarl9eo. Efforts to control defaults have bean inwaas* - at all
lavaia In recant yaam. There are a number of raaaons for this Increase » j. m all
falmeaa to thia program, one ahouWraalat tha temptation to ganeraUiaanc,*! point
flngere. Tha dafauit probiam muat be thoroughly examined from an angles and
viable aotuttona brought forth, it la not an Inaunnountabia problem nor is it an
Indication that tha Ouarentaed Student Uoan poigmm Is sariously flawed. H is.

«haf. one of tha outcomes of a varl«y of events in tha I9fi0s that hava seriously
alrelnad the Fedarel Studant Aid Programs.

McConnifli(-2

374

yttrt too, in July 1989. th. !•«• Quamrtttd Studtnt Low
rtTl^jJ*^^ twtor was I«vin9 o" th» Ou««n»^ Stuctort Loan
Z2«fliw.ww^^^ Congrt- took ■on«piw««lv.niM«jrw in both
now h« In plaof • Oofmm RaducUon Progmm.

pMiy.„fmmtNapn>flf»n. Doni whon poopli ttB you ihrt fraud and

abutahavtbaantlminatidffonnwaprosfam. nhaanoi.

TWa month in Taxaa wo havt ttfcan aclten a«alnat a school
Mrtoua financial i»d admlniatrallva proWtma to tha axifnt of oonnli^ thtlr
S2S^tonLni«idth.irop..*flnO««unt. «™ •"-•li::;-"

SZnd n«Kad KSF. a «:hool an^
rrit«~.y««lomoWt. B«tthanH*dl^fttnflpanoft«a.»nrl. t^"n;o
^mtnt of thia achool alao Involvad with anothar ad^ool *at had boon
ZZ^ from th. program two yaara aarllar. Wa bailava m n^oo^ waa
rgU^wnatad from tha tarntinaiad achool offartng tha aama

tha aama location.

in focuaing our altanUon on tha abuaaa of trada achoda. littla atlantJon was
xo th, landwa. .«»ndary markata. and y... SaWa ^^^r''^^
n^wdteol«Jthaotharw^«Wladaf8uHrataaaoafad. ^'"^^^f •f^"
J^on r««wTtfy qumad a «udam loan offloar al what uaad to to ona 0^^

S^Mi landam in th. pfOQiam rtailnfl that ha aarnad a $5 bonus tor a^^
toan that waa mada abow. a minimum Iwal.

This pjoflram cannot continua to tart tha patlanoa of tha Amarican puWte
much longar. Thoaa who abuaa thia pnjgram muat ba allmln«ad from
Mrtidpation. I agraa wtth Sanator fiunn-a commlttaa tapoit that twa -^^"^t
3ir«>»o«y «n tha «:hool aactor - thi. program haa baan a,g»loltad by lamJars.
Mn^ra, guarartora and sacondary maiHota. It mi«t not ba tdaralad.

McCocmtak - 3

ERIC

375

Seliool Etigtbllity In Fad«nl ProBrv"*

Th» «umbw of flOglbls bcHpoH In ituttwl aid prosw^ fl"** fapWJy
In th9 IWOi •» dW th» Iw* of thrtr pwtldptfiow in P»B Oiwrt^
StudomLoans. T»» vwl mijorty of thm tchoote wtio -lof im>«r pro^
•ehools wtuoh m many earn offtrad ahort4am» tmlnbifl programa In tiucWng,
nuiabis asrtatam. bartwidlng. and aaowtty fluaid traJnlng. m Taxaa atona. our
paitieipattng piopiWaiy achooJa giaw from 164 In 1W« to ovar 800 by 1990.
Aeeoidlnfl \o an Inapador Oanaial'a Raport m 1090, tna Daparimani of
Education pmvWad MtMa ovafUgfrt roaponalWUty In appfwinfl naw acftods: in
Juit • four-yaar paitod ovar 2,(»0 naw sofraola wara approvad but only 60
•choota wara damad all9^.

Siaia Hcanalng ««anciaa and achool accradWnfl bodlaa wara no mora
obaarvant during tWa pariod of flrowtn m partldpailnQ actwcto. as ahom by the
woikofthalnspaqtorOanaralandlhaConflratalonalRaaaardtSarvlca. Tying

^looi aHolbUHy to thaaa fundiona hai failad.

Aittraugh many partteipatlnfl propriatary achoola pfovida a valuaWa
•ducatlon In a vartaty of flalda. thara wara aoma unecwpuloua schools «»tu>
sariousiy abuaad ttia aya»m, proWdad no moanlngful educational axparianca.
and lafi thouaanda of young paopia mHUona of doilam in dabt wmi Uttia hopa of
rapaylngthairaludanlloan. At prsaant m Ta«a. ow 70% of tha total dafautt
daims ara p^ cm studanta wtw attandad a pn^riataiy school.

Program Compiaxtty and SHitfanl AM Dalivary

White tha Congraaa, tha Dapartmant of Education, tha atataa and tha
ichooiafoouaadonpravidngaooaaatohigharaducation.thaywara aiaojustas
conoamad about tha funds going to only tha intandad population of atudanta. In
our xsal to baooma aoooontabia, many bacama Insansltivt to tha affect that
thaaa nunwroua changes wara having on tha oomplaxtty of tha application
procasa.

Over tha paat 25 years an antlia tndusby, almost a cutt. haa grown up
around the Student RnancW Aid DaHvaiy Syslama. paf«lculaily needs anaiysla.
To insula that funda go to Intended popdaUona thia jroup encouraged an

MoCofmiolt ' 4

876

9¥9tif r»gtd«t«d. MgMy complM SttidMt Riwnciil AW Ovihwy 8yst«m.
Uftfonuntttiy. ttito sytt«m fm itwH t90om a barritr to providing mcm*.
Uninformtd and untophiftlcaMd fimiUft. psfiiculaily tow-lneom« and
mmoittlas, hcva bscomt ao fruatmtad with ad ttia forma and ttia prooestM
natdad to rac^ financial aM thM thay ^ diMoufi^ and dfpp out of tha
prooaaa^^thar. Thaoomplaxttyofourayatomhaahaipadtoalaraninduatiy
of paid financial oomultonta and ovaizaaloua oomntiMionad prepriatary ac^
racnmaf* Juat to haip thaaa famHiM through iha latyrimh of forma and
praoidumnsadsdtooMain atudantaid.

Tha Plight of um Mddta Class

Although thara haa baan an impraaaiva commitmant to tha atudant
financial aid pregrama In aptta of tha ovanvhabning budlsat dafidt probiama in
tha isaoa. thara ia gtowing avidanca of a aartoua aroalon of mlddla Incoma
familiaa from partlcipBlion in tha atudant aid programa. Sinca 1901 tha
Quanuttaad Studant Lran pn^gnm tm virtMUly baan raatrictwi tow-inooma
famitiM. What it faarad is a ayatom of financing Mghar aducation In which only
tha vary poor or tha vary ffch can aff^ to go to eoHaga.

it to fruatrating for famlUaa to ba told that thair cMldran almpiy do not
qualify for any fadaral aid, including a Ouarantaad Studant Loan bacauaa thay
own a homa or aam a modait Inoonw. Thma ara tha famllM tha Ouarantaad
Studam U»n program waa ortginally dnignad to aaiva. Evan mora InAilting Is
not baing abia to axplain tha naada analyaia ayatam wail anough for tha
r^faclad tamBy to undarvtand why thay do not qualify. Thia may aurprtaa you.
Mr. Chairman, but i can ramambw whan you could axplain r^B<^ analysis to a
fvn9)f and it (M malta aanaa.

MoCorniiok - 5

877

r£DOMMENDATK)NS
Hw PMwal Biidgtl Proo«M

K ProvM* lor mora etrtftd •nnnnatipii of ifio tmiMot of
propooo^ nwntfotofy budflot tfofioH ouli prior fo adoption.

a Bnaot loglololton to mok* Poll Oranto an antttlomont ao
that noody attMhmta will know baforo tuoy bogin thoir
poataooondwry adueatlon ttw lavai of oomndtmont ttiat ia
avaUaMa to thorn.

C. Enact laglaUrtlon to roeognlxa and prottot tfto Qtiaranty
Aganoy Baa^aa aat a«Ma for paymanta of dafauttad
ioma In ordar to raatoro oonfldonM in tlio flnanelal
marfcata In tha Guaranty Aganoy'a futuro aMiKy to pay
olaima.

a All gvarantora ahara aoma raaponaibiiity for roduolnB
dofauita. A now achadula for ralntufanea ahould bo davatopod
««Mch praWdaa Inoomtvaa to aU aganclas to riduca d»fault9, but
tAith ai&o doai not tfvareiy panailza guarantori wMch safva low-
inconw poptriattona.

Maultad Studant Loana

A. enaet loglalatlon to provido "parformanoa batad"
ragulatlona In tha ooiloetlon of loana Inataad of tho
ouimt *'oompnanea haaad, dua dHtganoo** roguiationa wo
now hava. n ahould ba notad tnat tha way tha ayatam of
latnauianoa and dalmt paymantt now wofka. tha incenttva la aoleiy
baMd on fodowtng tho duo ^igonco ra^ramantt. Thara is
viitualiy no inoofltivo for tho netahoidar to ooUoei paymantt from tha
bonowar. m Taxaa, 70% of tha daimt woilvad from landaia hava
had no paymanta ooitadad from tha boflowar.

878

a SInqMlty mt StuclWTt Loan DUMmmt Ptocms • A rtctnt study
by tha L&l Settool of Pmo AfMm. UitivvraHy of Toms it Austin.
showodtlMtcMOnnsitlBwtrspooflyuntfofsiood. Tho stutfy ftnkod
toniior pubOo and pfhrslo ¥oetfonol sdueition stutfsnts. Aslitisteally
slgnifieant dHfotwtos boiwoon Mutton tn6 loptyofs' knowlodgo of
(MOfmoms was found. Tfiis suQflOstt thai many borrowws may be
dtfaiMng wtwn tlioy an aduaOy oUgJbto for tfofsmtonts. Who can
Uanw thorn for not undoiiiancing tfio IB dtflsfsnt typoa of Momwits?

C. inaol logiaiatlon to "front-iaad" granta to nootfy atutfonto
in tholf first two yoara of eoRogo and not allow borrowing
during tho flrat 24 monttta of thair postaooondary
aduoaliofi. Statisties sothorsd ovor tho yom In tho Ouarsntood
^udorn Loan program doaify indicato a high conoiaUon among
dofauitad borrowora In tholr first two yoara of sehool. Mora
imiwnantty, siudsnts should not bo oxposod to or askad to tako on
largo dobtt during tho moat risky sMgaa of tholr oduoattonal
oxpoifoneo. Thia ono ohango to tho w^ wo iimd studont M oouid
hava adramaticaily poaithra affsd on studont loan dotsutts.

3. Fraud and Abuaa

A. inact laglaiatlon to rocpiiro ttia Dapartoiant of Eduoation
to tfovolop rogutafiofw ttiat raward good parfermanoa In
oofrytng out tfw purpoaaa off ttia programa. Examptary
schools, Isndofs, gusiamors. and ssivtears oould bo roiisvod from
tho mora buidonoomo. rsdunctam. and unnacoasary rulM . Tho
posfliofl or tho Dopaitmont a Eduestion that aa partMpams must
ablda by aR 0«a sama lulaa ia oosSy and inaffactlvo. and ia actuatty
hnpaMng aooaaa at oofflfflunity ooUogso in my homo stalo of Toxas.

a Raqulra tho ea ora tary of Iduoatlon to improvo ita own
program oompllanea aoUvlllat In aooordanoo wKh rooont
fooommop^Iatlona by tno Inapaotor Oanaral

MoCormiok • 7

ERIC

379

C. 8w)«0r Nyfin's oomrpStm nport oM for InerMftd ovtnight of alt
Mcontftiy fflviMfi wd MTviMiB. Wo MdoiM that rtoommtndation
at vHH to otoppino atwio in thooo lOGtom.

Selioot eilf^tuty

A. Honiovo aeoradltcttofi m a part «f tito preaaaa ttiat oohooia
oomiMot* to bi sarttflad to roealva fwiaral ftintfa. School
•egtowty raqutramamo thoutd bo otrtfiathonod and toparatod from tfto
ao»«(fitatton fHOOtot. Ttm Mrti f^vonrnttnt tfwuHi otiaWith Its
own bidopondom atandarda for afiglbnty boMd on flnandai aoundnoto
and provan latMr maiHtt domand for tttt oocupationa for which iho
studanta ara Mng tminad. in i^prevff^ adtooia for oR^tty. tho
Oapaitmam of Eduotfon can woffc wWi SWo OocMMfltenaJ informaHon
CooRftwttng Cowiciia to daiam^ alata apodte labor martwt noeda
and^ aat cHtoria to nattonat woifc fOrea goata. By taking
■oeradMng igandaa out of tha loop, tiw fadarat govamnwtt oan aaaart

to propor authority in apfmving 8(^iooia 1^ Tlte IV atMttem add.

B. Raquira eartain nUnlinum fadaral atandarda for tha atata
itaanaar of praprtataty aoliaola wlia wtali to partlelpata In tna
fadarai atudant aid pragrama.

Program Camplaxfty

A. Oiva fun aupport to tha raeammandatiana of tha Advlaary
Canmlttaa on Stitdant Plnanalal AM In tfia foHowIng
araaa: tntagraiion of naada analyaia modaia into ona modoi,
ain^fying tha 1Mai«t appOcailon. and tha promotion of tha uaa of
tha fraa fadnai tonn (paraonaBy, i would go ^(thar and xeoilEA tha
uaa of tha fraa fidaial form lor an Tna iV aiudant aid).

a fla«|iilra Ouaranty Aganalaa, in eooparatlan with tha
Oapartmant at Eduaalion. to davalop and imptamant
eommon M formata lo aoaa tha uaa of loan data by
aehoola, landara. aanrfaara, and othar antMaa.

3S;

380

C. OlrMt tn* D«p«rtm«flt of Edueation to eomo int»
eomitflofiov with oxlotUifl ftdoral imr by brtnglna tho
Notfonol Sttidofit Loan Data Bata into full oparation aa
toon aa poaalbia.

0. Raquira tha uaa of ttia Simpla Naada Taat for all who

ciuanfy. Low inooma famii^ aiKKiW not ba Mb^ctfd to a battaiy
of uaalaaa. unnmaaafy quaatioro limply In ordar to food tha
ravanua a&aam of an MMtipla Briuy (MDE) oomraoKv.

Mlddla Claaa Studani

A. Ellmlnata tha oaiouiatlon of homo aquity from tha
oalotilation of naad In ordar to qualHy for fadaral finaneial
aid.

a ilatum mlddla inooma atudanta to atistbta atatua for
Quarantaad Stiidant Leana. RaWift the Mddta biooma Student
Aid Act of 197S: it waa good law than, and it la good taw now. Wr
tnM provida a ayatam of fadaral flnandal aid thai doaa not exclude
tha mlddla daaa.

381

Thf ltdtrti roto In Wght r •di^tflon hu done much to provWt
•ducatiwMd oppomM% for Kt cHiMfW. And up tP now. ih» Amtrtcan paopl*,
the«vw»9tfluy,h«ilitmplyfupportodtWinDit. AWwugh « h»« tpwt mo«
of my ilmi tWt momJnfl pointino out tht flawt In tht FodorH ftudf m aid
piogramo. I piwonaJly ft* that thoy «» ononnoutfy iuoomfuJ proomnw that
mm alraady madt a trt msndoua oontilbution, not only to tha studants tf>ay
hava aatvad. but to tha nation.

Howavar. thaaa prorun* '^^•1'^
Thay iroiat ba fair, undaratandibia. raaaonatta, and aa fraa from fraud and
abuaaaapoaM. Wa mual aartoualy wtew tf» pioWama that »wva baan
pointad out and wa muat conict tha arrwa ttwl hava oecun»d; oo thai atudant
aid progiama can onoa anioy tha pubilo aupport thay doaawa. Tha
ultlmaia taat <rf tha Intoflmy of tha fadaral atudant aid proyanw wtB ba whothar
or not. In tha minda of ttw Amailctn publtc thay ara auccaaalul in dallvartnfl tha

•Amarican Draam" thay pwnHaa.

Thank you Iter thia opportunity to ahara aoma of my ihooghta on tha aubjact of
Program Intagrity and Raauthwteatloo of tha Wflhar Education Act. I wHI ba

happy to anawar any ciuatfona you might hava.

McCormtak- 10

ERiC

382

Chairman Fosd. Thank you. Mr. Samuel Kipp.

Mr. Kipp. Mr. Chairman and members, I'm »im Kipp, Executive
Director of the California Student Aid Commission, but today I'm
app^ring on behalf of the National Council of Higher Education
loan progran» as its incoming premdent to provide tratimony on an
issue that must be resolved succeei^iilly if this coimtry is to a^ure
genuine opportunity for its citizens to participate ftUly in its econo-
my and society— the question of institutional elig^ility and educa-
titmal effectiven^ in the Nation's guaranteed student loan pro-
gram.

While it's been said before, it bears repeating here at the outset.
The concepts underlining the guaranteed student loan program are
ftmdamentally sound; the pn^pram is essential to financing postsec-
ondary edu<»tion and to promoting edurational opportunity.

For millions of young students education is the only avenue of
o^rtunity for improving their lives and tho» of their families.
The importance of aaxw to postsecondary education for all Ameri-
cans can not be oi^istated, yet most of the problems we confront
today will not be resolved unless we correct the glarii^ weaknesses
in current institutional eligibility requirements and limit aid eligi-
bility only to thoM institutions that can and wiU deliver high qual-
ity education and training to their students.

The vast majority of coUeges and vocational training schools that
participate in the Title IV programs are doing a good job of prepar-
ing their students for worthwhile careers. Having said tnat,
NCHELP is unflinching and also saying that too many schools al-
lowed to rartidpate in the prwram offrr predous little in the way
of true eaucation or valuabte trainii^. In real terms, that trans-
lates into himdreds of thousands of students who have bran hurt
and are now worse off only because they wanted to better Oiem-
selves.

The collective concern should be that every student have an op-
pOTtunity to obtain a postsecondary education, not that every
sdiool have ihe opportunity to receive Federal financial ai^stance.

NCHELP believes that neitiier students nor taxpayers are helped
by permitting unsuspecting students to be recruited by institutions
with inadequate admission criteria, insuRicient counselii^ and aca-
demic support services and substandard instructions.

Such practices have contributed to an appalling incrrasing in the
victimization of unfortunate, unsophisticated borrowers and to the
rising inddence of defaults.

The current national defoult problem stems not firom quality in-
stitutions that are serving poor students, but from large numbers
of substandard institutions uiat serve students poorly.

Measures included by Congress in the last two budget reconcilia-
tion acts have made meaningful pr o g ress in slowing past ex^asea
at institutions with the worst program track recoros. But these
m^sures, as valuable as they are, only provide a bandage after the
serious damage to students and taxjmyers alike has already been
done.

Unless dramatic changes are made in the existing proce»ing of
conferring institutional elisribly, other substandard institutions will
simply replace those high default rate institutions that lose eligibil-

383

ity, and the newcomers will be permitted 3 to 5 years to profit from
their students' misfortunes. _ m.*i

At the present time, achieving mstituUonal eligibility for TiUe
IV aid only requires three things: accreditation by a recognized ac-
cteditingbody; State licensure; and the certification by the Depa^^
mentofcducation. . _^ o* *

Yet. in practice, the Department of Education and most States
simply defer to the standards and judgment of nongovernmental
mivate trade aseKxnations to bestow accreditation and, with it. Title
IV aid eligibility on ttieir dues paying members.

Overset policing of institutional performance by accrediting
bodies is too weak, especially in the face of the enormous financial
pressures that student aid provides. Policing by State hwnsure
bodies has also been too weak in the past. The passage of much
needed, more rigorous standards of institutional performance m a
few States suggests that mandating minimum standards for State
li(»nsure holds considerable promise.

Policing and oversight by the Department of Education has been
quite limited, although the default r^ulations and other recent
steps promise some eventual relief. Still, the new leadership m the
department must focus much needed attention on developing a con-
siderably more demanding and effective certification and review
pnx^ss.

Fimdly, policii^ by guarantee agencies through compliance re-
views and LS&T actions has been effective in a number of States,
but such LS&T actions can only be taken after substantial evidence
is produced showing a continued pattern of administrative fwlure
at an institution, and only after hundreds of thousands of students
have been victimized. . . » , u

The status quo is no longer acceptable. As part of its comprenen-
sive iMiper and extensive recommendations on the reauUiomation
of the guaranteed student loan program and other Title IV pro-
grams, NCHELP has developed 15 specific recommendations which

!>rovide a better basis for institutional participating on the student
oan pn^pram by emphasizing educational effectiveneffl and con-
sumer protection without arbitrarily excluding any sector of post-
secondmy education. . ^ r

My written testimony includes all 15, but I'll mention just a few,
or highlight just a few of them now: The definitions relating to m-
stituifional eligibUity should be the same for all Title IV programs;
GSL length of program requirements should be altered to coincide
with those of Pell grant and campus space prosp*ams, not less than
600 clock hours; for the purpose of demonstrating institutional eh-
gibility to participate in Federal student aid prop^ms, all mstitu-
tions providing occupational, vocational or technical training must
measure such training in clock hours. . ^. , ,. ...i*

NCHELP recommends that stringent institutional eligibilitv
standards be developed by the Secretaiy for institutions that wish
to participate in student aid programs, mcluding but not limited to
mahdatii^ minimum standards for State licensure criteria which
incorporate r«juirements relating to educational outcomes and con-
sumer protection measures.

Those standards must be met in order for State licensing to serve
as a basis for Federal student aid participation and. secondly, by

ERIC

Of) t

384

tiequiring educational institutions to demonstrate financial and ad-
ministrative competency and int^rity before participating in Fed-
eral student aid pn^rnuns, and as a condition for continued eligibil-
ity.

NCHELP al«> offers a number of rea>mmendations dealing with
strengthening acxnieditation and setting terms for {^rticipation by
new schools, branch campus^ and after changi» in school owner-
ship.

Current prohibitions on the use of €»mmission sales people have
apparently not cuihed the incidence of abuse in recruiting stu-
dents; therefore, NCHELP recommends that institutions not be
able to use onnmifision employees in any phase of their operations
unless the sole basis of the commission is the graduation or place-
ment of the students involved in the recruitment.

And, finally, because of the massive evidence of problems and
the difficulties of regulating such institutions, NCHELP recom-
mends that correspondent cour^ no longer be eligible for partici-
IMition in the guaranteed student loan program.

Hie kinds of changes and recommendations offered by NCHELP
would go a long way, if implemented, to strengthening the integri-
ty of the programs and assuring that students receive the educa-
tion and training that they're promised.

Thank you for this opportunity to appear before the subconmiit-
tee. I would be happy to answer any questions.

[The prepared statement of Dr. Samuel Kipp follows:]

EMC

0() »

885

Tcstinsony of
I>r. Samuel M. Kipp» III
Executive Dirtctor» Callfoniia Sttident Aid CommKsion
representing

National Council of Higher Education Loan Propams (NCHELP)

Subcommittee on Posisecondaiy Education
House Committee on Eduration and Labor
Qiairman, Congressman William D- Ford

May 30, 1991
Wsthiofton, D.C

386

IimSMKii^BMaitiwDfapctOTirfiteCi^^ "nxtey, I am ippcirlng cm

bdiiff of U» htottoaaJ CooBca irf Bdi^^

pnndde tatimonf aa ism Hut in»i be f«sQ)i«4 tsms^ if ihis omntiy Is lo asiin «efli>ii»
opponunity for «l] lis dthm to pmlc^te Is mmoiny tod lodeiy • ibe qsesuic^ of fimltnitoiial

WWle It has been uld before, H bean repeaUji| bm ai tbc oatsct:

The ouKspts ujKicriyiiig ibe OoaraAiMd Studcol Loan Program ar^ lUndamcntaUy sound; the
prograiD is essentia) lo ih« flnamdng of postBCQoiidvy cducaiion aitd lo pmraoting educatHmal
opportunity.

The adjnlfiistiatloa ma nauK^g of the program itprescni a sacttisfu] deixnualized partiierahip
amonj iMiatcc ^pcmit^ commcnial leiMic^
Bt^ ijistjniik?ps of postseooDdap- education.

For miUiotis of yoiW|siiideots, beginning ilMdr lives » iodcpeodcni dtims. education H the only avenue of
oppommiiy for improvini tl^ lives sjid those of their Camilies. New norken wiU find that oaupaikms of
the Htm require ewinereasii^ teveSs of edmtto ud ttaining. Growing samboi of Americans already
eiii»|fid in U« wT^>{aoe wfD find thamclves iocreasin^ vulneraMe lo dispteccoKni by shifts in fegional,
national and gfobalconsomies. ihcm, edwation ajid wnraining are the diercreacc
emj^oyaWlfty and protonged, debilitating imc^ RaaBy, if the nation** to h<rtd its oiw in the world's

economic and ciUtwal cwnmuaiiy, it most on topraMed levds of sWIl, kmmtedge, aod sophisticatfon whkh
oflJy edueatioD can provide.

ERLC

387

tl» pnA^ms «c ooafrom lodiy - (1) ifclnj dcfsiiU costs, (2) titt imbahnoc beiweco grants ai^ tons. (3)

cmtt w^ite aisuring Mkquaie access to kttxi opIuU for ill cligibte studoits, mctd 9S) losoriag public ocmfi(teiioe
iuppon for esscniial fiABOcUtl aid piPgrams will mn be nsoNed unless we correct ibc S^arinf
vesksHSSscs io cuntat imUtmioiia] cligMity itsqairrfBeiiis ■std limit aid di^bUli; only lo tbm imiitmioitt
tbat can and wiSi dcUvcr high quHty oducaiioB and tiaiaiag lo ibeif sutdeso.

Tht v»si majoniy of coJIeges ami vocattonal training scbools thai |WrtJdpate in the Tiite IV proems are
doiflg a good )ob of preparing iMr students ftw wonbwWte careers and }obs that cnabte those who borrow
to piy for higber educatiOQ abo to repay ibcir siiKlent k»R ikb^

Having said that, NCHELP is unfUncbing in also saying that too many sdiools allowed io panH;lpate to tbe
program - particularly those offering bigb-cosi, slwn-tcnn voaitk>nal inuning - offer precious little in tbe
wsy ir»e educatk>n or valuable }ol> training. i» "»1 transtaies into bnndreds of ihoi»ands of
stodcnu who have been hurt and are now woiK off only because tlay wanted to better ibemselve*. Taxpayers
ba%« been Mind sided too. Some unscropaloiis school owners have profited greatly by these tossc*. Sw±
abuse has stood the basic purpose of the student loan program on its bead: the bencfidarks of Mudent aW
shonld be siudcnu. not schools.

The cotiective concern should be thai every student have the opportunity to <^uin a posiseoondary educaikro.
not ihai evcfy schtwl bave ibe opportunity to receive fede^l financial assistance. NCHELP bcUevp* that
neither students nor laxpaycis arc helped by pciwitting unsuspecting stiKlents to be rccniiicd by insiitailons
with inadequate admission cnteria. insufflrteni counseling and «adcmic support servicea, and substandard
ImtructJon- Such przc:iocs have contributed to an appalling increase in the viatmizaiion of unfonuoaie,
unsophisticated borrowers and to the rising iscklence of defaults. T!« current national default prt^Jem stems

ERIC

BEST COPY AVAIU8LE

888

Bot from quallQr iBsUtutimift vasing pom siwkais. but from Urge namben of »«^uiodArtl instiitiikMs thai

Mestiura iuciixted by Congress in tb« tesi pw Budgcx Rccsotialiailofi An* fwvt irade nicanlngftU progress
in ikJwing wiWfire pattem of heavy tHmowij^ - asd its cOToOary W|h simteot toan iklaults ^ at
iosiiialMHis iiic wofst progmn track leoonSs. Bdi ihese measurts, as valuable as ibcy arc oaty provide
a bacdage after ihe scnous damage to uudoits and (aipayer alitcc bas ali«ady been done. The current
vaguescss about edncaiional Maodards b«» enabM some educational insUttiilons to offer pfograias of
quesikmabte quality. Unless dramatic dungcs are made in ibc exsstiflg proocss of conferring institutkmal
eligjbilliy, otber subsundaid institutions will simpfy replace those higb default rate instituttons that lose
eli^bty. and tbe n!!woomcrs wfli be pcnniited three to flve ycajs to profit from iheir stt^eais' misfonooes.

At the present time, achieving institutional eltgibUity ^r Titk IV aid ooty requires ihi«e things: accreditation
by a recognized accrediting body, staic IKxnsure, and cenificatiOT by the Dcpartnwnt of EducatJoa la most
suies, Uoensure require* Utik more than accreditation. Conscqtiently, the Depanracni of Education and mwt
states simply defer to the standards and )udgmmi of noo-govemmestaJ private trade associations that bestow
»ccredttaiion, and with it HUe !V aid eligibility, on their dues-paying members.

Oversight and pi^lKir.g of instituiiooal pertormaoce byu accrediiUtg bodies is weak» espociaily in the face of
the em^mons flna]K:iat prmures that student aki provides. Some accrediting agencies provide strong
assurance of cducatk)nal quality and cnssumer acoounuMliiy, bat for oihen, finandal aid provides a powerful
incentive to loot the other way when their sd^ls are abusing aid jm)grana and failing in their educational
perfonnanoe. The lack of effcctivmn of some accrntiting ageocks is also prompted by fear of being sued
by their membefs ar^ of losing membc n through accreditation hopping.

ERLC

Of'

389

or U«moito«I pcrtbmu-ce »» . fc» .uies 5ugges« tU. n«ndaU«g mU.lm«« ««K»anb

p,o«ah« ne«v« l«M «>»Wer.bl« pTomtie «p«i.Uy if 5U.t« li«a»u« mnd.nb m«. be me. as .
oxhilikm for fe«to»i sJu<Jem si4 panfcipaiion.

^ c^x^ ni^ «P««^ UK «w «fu«d r«,uim«nu. <»cl^ «n««.*on of k««». «««
^„ cu«m for high ddaul.-r.ic «Jh»1^ IT* «ew te«ta*hlp U. Dq»nme«i m«t foci» n,„C
needed .««.K,»ontfe«Jopii,g.«.r^t<>er.bfynK,«de^

PoUd«g by g«T.ct« .gtnde* U.ro«gh co«pU-iK. rtvieu, U S. * T a«io«s h« ^» efleaJvt in .
»«»beT of 5U«.»,bm.»chUS.&TKt«« car. only t*uk« after .ubsumialev^
a6oato»««pa.«r,. of «JitU0Hua,NehUu,e.,a«i»s,n,vion.80do«.fy after ho^
IkM !)««» vteUmiKxf ami tounikss uapayex doltars iwve been mhsusel

sum s»o H no K,««cr ««p«at»e. Tl«re « ao urg«.. »^ fm h^gb.coed en,pb«.* on «»u^.«na.
eiieah««i «> a«me U«. seouiBC ed««Uo«al oppor«nhy b p««v«l and p»W« ««fMe»« ia
p«Be„^«ducatk««««ir.lBin8*«»0T«i While .ccm ».«. be a^on-l. h n,»« be .«» .o an
ediKSitoo wWea ieihm kM, poaiiive ouiwnw for twdenii-

A« p«t of iu comprebemlve pc-rtoa paper a«l exu«K« r«o».me«la,io» on tbe Re«uthorizaUo» of ibe
0«r«««d S,«»e« Lo«, OU« T»Ue IV NCHEIT b.*

«,«.Be«U««» wbW. pr^ a belter b^i* for lasUtnitoMl panWption in *e loan ?n38r»« by

emptiM^ «to»tion.l e8ective«c» ««I cP»un« p«H««ton wftbou. arbioartly excl.«>lng any ««or of

ERIC

390

Tto«toitk«ii«l«li,tab»l»i^teailf^^^ CgL
Us«tlH)f..|irDgnm r e sniiw uc uto ^iobM be «tetd to csfaiddc with tbosc of ttie Ml GmH and
CMpiw-towcd iMvtniM cm hoon). Tlifc wubl have positive heoefits iaibc af«a of ite&iUt
itdBO^, Since it wwUd minimize ibc prapea ol stsdents relying excJusively oa loans in tmJcr to
finance il«ir cducaiioii. FunhennoTC it wuJd address il» questionable recruiting practices of some
siKin-tenn wcatkmal insttimions with vciy high defouU rates.

For tbr purpose of demonstatii^ ^fg»>*% to partklpittr in MmU stsdem finftfidaJ aM
an iMttttttom proHdHis oeaipotloos, vocatkmai or MmtaU trainlf^ must measfuv sm± tnlrUns
In ctock hmu%. This wovid ei4 the current practice of cDurse-sireiching ihroagh artificial conversion
from dock hours to credit hours.

S«a^ SHist becooie motr lieai% int^jM to om^i acttrtto of and ttcnsU^ mpOmiients for
watteoaJ postsecoiitey instHotioiis. They amrt nioaJhr the 9ia% of tdwMMkw and pcffonn
fionsoBwr prolettioo ftioetfoot whh feyifd to bittttiitlm ibe^ tfcosse. These ftmctlo&s sbocild
hKlwIe. Iwt Dol he tterfted ■ofi^^

poUcka, Evidcnc* (^amrditatioa fhootd do tooger be the sole bm^ tor rfceHog a state lictnsc ft)
operate.

Althon^ the Smeiaiy has no auUwlty to r^ntate instiitttiooal curricula, be ciearty has anthotliy
to provide oonsomer piotection guicteUnes to safegnard the use of ptfljlic student aid funds and
snbsidJes. NCHEU'nwa^aidsitosiriagBrtliirtHBtia^
Secmaiy for Iflstitottoos Uiai wUh to pofih^
tos

r pc o twtko w wiu **i Those it«idiiiAin«st nt4 la

onto for ft^ lk«^i« to lerfe ■* » iMli tor WcnU ito^
• Requiriaf cdocMSooA) bsstitiiiaoas to ^caaosir^ f^amM and sdmiitbtratiTr €t«a^€taa^
mA tattgHty bt^ pwtic^io&it to ftden* »H«tent firogmis and «s • conOitloD nC

NCHELP Umo Dffcn « number of lecommaHJaiiore dealing wiib aocxBdiiatioo and tenro for parUcipask» ty
new scbooH, branch campuw* »nd aftw changes in school «5wncrship.

tor fhtoal stwtenl sOd fttudi, It Is PCCMwy thai be oxtrist strifigcnt contnd a«r ttw scope of
acmdltifqi pn^tkw rrfal*^ to amferkq wicb dJglblUty. In whUtioti he oiitrt «iter« miohBum
standards for rrv*«w and oversight

National and irgionaJ McrcdHtng enUtks mttst be m|iilred:

• €0 UKOfpowit stridsetit wiMiioer jwrrtectkm siaLiidanb as part of tltt accredliaikw
iTf|iilrciBeiits{

• to Inrtev the Secretary of |J] actfoos taken wtth rcsaid to Khools;

• ioba>f puWfcsoppodCltoandaland^ksalKfi^deei^
if sued hy InstittttlDos for resnova] irf accrrditatioQ;

• to approve anj new aiHl^ branch site separBtrty, and to fwwJde fbr better ortrsight of
branch cainptises,

m Anynewlnstitntic«iri»btegtop«tklpatetotheGStP^^

f^i>8iam, as ootUned In cfin««t repilatkww, tor the first two years irf such partkipathm.

ERIC

As bssttaite »IM ciiM^ omi^ or

Adz ciaage to fauttimloBil owoer^lp wffl trige^ A iieir f%

an oamlitttlon «f ibe new «wncr^ rcxord, mm vdl « « ctxcii for prtriotxs p ro t*'— iiupc iututL

Instliiftkma] cwScs for GSL, Ftfl, «od cmmpes-lttscd pnifmt sboold be tmUled telo « singk »dr
tmoibcr. Tlic Scoeury mttsi Meniiiy, thrwigb a sqmte owte, aU braach aiKl ftub&i4iaj> csmpom.

AQ liistltiitleaa auiai bM mn bidcpeodrat tldrd-fitf^ coopUutt aod fiaaadil «adlt ptHbfgd
biesBia^yr which omfflcs tbst Mer^ smiKl^ lo^^ So^
w«ma »h»a be .tBO^ to ^w»m«e i»if>d«,
MmdiUfif ifciidca, rad tbe Sfxrmry.

Stn»g Bcasma sboold br tAfccQ to imMe fo^
the toOoirlBfs

• RcftetdpoCkksabooMbelUraiidpr^^

• losttafttatt tba( advertise flmt proo riamU y dMm fai socb irfmtiscacsita ibdr own
experience wjtb;

* tjptadl w o mity borrowtd

# pleccscsit Fvtes

* ooBplctleQ rates
V tabU7 oClEff

• toccefsftil UcenarBorgraditttes.

4 ,/

393

1^ Sy A T actloas suat b« c&dfve acnss vnc^ ^fa** lasefi^dy ud ti» Sccretsry ws»t frv
lonrpc tgd that Uie ««Md 'iHiqaslfi^ la RCtkia 432 Mj mam tntpc oi toB v Umttttioo - not
nmn»1]y mwlBBtkm. Tlie SMS«im7 rat w4 wttli dliw ifc«d oo iVepqr U S» A T
^ to omtarn ifl ^focfi oa pmfdOTl rofi^
oetcnM to aa ottMT I

# Oimni pndiiWitoDS oa ibe use of commtotoocd aakspmcNis have appsi^niUy mrt csrM U»
incWteiicc of abuses in reoumngsiotenii. Tbcrefore, ^wmEU* pwp««

to itiv cwMMonrt caplf9ett is «y ptaw of Hielr opomHons, sites tfao wle bote
coMbrioa fa ifac tnwiuatto or ptoctac^

• CtonwpowkJKe edncatm ^ alwost imposribk to nMHiitor, awl course teogib CwWch dctcnninea
isstittiaoiial cUgftmHy) i» 4ilBcuh to CSwts of such pPD^ams are minimi

a Ouanmccd Stutau Loas teoomea a vditele of bttsic stuOeiit IMng suppon ratlin thin as&ifttance
to defny educatkma] com. Tberefore, NCHELP itcoanirodt tfeat cofrrfpopdcocc coonca no ioogcr
te diglMa fbr ym H iffrtio B tto Gsamtaed Stodesl ton riugiwa

Tliaift )W for f Ws opjKmunliy to appw bcto^

4ni

ERIC

394

Chainnan Ford. Mr. Lon^ecker.

Mr. LoNOA>' :ksr. Mr. Chainnan and members of the subc^m-
mittee, I appreciate the oroortunity to testify to you today on the
reauthorization of the Hisfaer Education Act, specifically, on the
ifisue of institutional eligibility for Federal student financial aid
programs.

I'm David Longanecker. I'm the Executive Director of the Colora-
do Commission on Higher Education and President-elect of the
State Higher Education Executive Officers Oi^anization, on whose
behalf I spc^ak to you today.

As know, institutional eligibility for oarticipation in the Fed-
eral student aid prc^ranu has traditionaliy involved the so«alled
triad— the three stage process that includes being accredited by a
l^Umate accrediting agency, being licensed by the State in which
the institution operates, and being certified by the U.S. Depart-
ment of Education.

Until recently, there was general faith that these three require-
ments assured program integrity. That was certainly their intent.
Mounting evidence, howver, has made it clear that the triad is no
lomper achieving its purpose.

■flie current system for establishiiM institutional eligibility is
both confusing and ineffective. Uttle, if any, communication exists
among the three parties invol^.

The reasons lie not with any one of the parties, but with all
three and with the process. Our migor concern within SHEEO are

S»test with the role of the States which, in many cases, sixnply
ven't done an adequate jobs in the State licensure function. The
States are highly inconsistent in their standards, with some States
aggressively pursuing reform of licensing practices and procedures
while others lag behind.

Further, standards within a single State are often inconsistent
and unaxmlinated, with multiple agencies performing similar
tasks but using a wide range of standards and procedures. Unfortu-
nately, this has resulted in a proc^ that inadequately protects the
consumer, the education or the training offer.

Now, that's our history. We want you to know, however that
SHEEO and the States are seriously inter^ted and committed to
helping restore int^ty to institutional eligibility through height-
ened attention to State level institutional approval activities.

SHEEO and the States have confronted this issue in three dis-
tinct ways. First, a number of States have initiated regulatory
reform to unprove the licensing of postsecondaiy institutions. If I
can use Colorado, my own State, as an example, the Stete legisla-
ture last year omsohdated the re^fulation of ail private occupation-
al institutions, including barbenng and cosmetology, witmn the
new agency of the Department of Ifigher Education.

This year, the l^islature establiwed a training assurance fund
to assure that all students have the opportunity to complete the
educational program in the event that the institution in which
th^ initially enrolled goes out of business before they complete
their education.

I might mention that New York has also been very active in the
reform of its r^rulation of postsecondary institution. And, in fact, I
should also mention that the legislation that we propose and have

ERIC

4.2

895

included with my testimony as part of SHEEO's was fashioned
with a great deal of help from the ^te of New York.

Second, SHEEX) itseU; as an organiaaticm, has {»nuniE»ioned a
mmor study of the methods and effectiveness of State licensing,
which will be presented to our membership for adoption tins
This study will call for national standards for State li-
censing to be adopted by the 50 States. These standards will be
based on the series of universal principles that regardless of
nature of State governance, can be used to fashion State specmc
laws and regulations governing the licensing of postsecondary insti-
tutions. , ,

We believe that adopting these national uniform strenguienw
standards will not only help a^ure better State practice, but will
also increase sul»tantially Uie integrity of the student aid pro-
grams. ,

And, third, and more directly related to your debberations, the
SHEEO has proposed specific legislative language in the reauthor-
ization of the Higher Education Act that would make State licens-
ing the centerpiece of institutional eligibility for Federal student

I should mention that the attached language to my comments
has been revised from those we originally submitted to the commit-
tee. J

We believe that this process would be entirely appropriate and
consistent with your Federal policy goals. First, it establishes the
primary locus of responsibility close to the source of regulataon.
And, indeed, the strong record of the VA approval process, which
was discuased earlier here, demonstrate that such a process mdeed
can work well. . ^. „ ...

Second, it retains for the States what is constitution^y and his-
torically their preeminent responsibility— that of providing and as-
suring quality delivery of educational services.

AM, finally, it places the lion's share of oversight responsibility
for governmental pn^rams in the hands of governmental bodies,
rather than ceding this authority to private nongovernmental ac-
crediting groups, which for very legitimate reasons shun away

*^Spwi^Sly!^EEO proposes that Congress authorize the Sa:re-
tary of Education to enter into agreements with States. These
agreements would designate a single State pratMCondaiy approving
agency responsible for approving institutions and educational pro-
grams which receive Title IV programs. , . ..^ ^.

This propoMl would not require that the hcensing of institutions
be done by a single agency, only that one agency be responsible for
certifying to the Federal Government that all licensing bodies m
the State meet these minimum Federal standards.

In the event that a State chooses not to participate, the Secre-
tary would be free to enter into agreements with other rehable
agencies or organizations which would monitor the institutions in
question using federally set standards of accountability and mtegn-
ty

Operating within broad guidelines established by the Secretary
and consistent with the legislation, the designated postsecondary

ERIC -^^'3

396

approving agency would establi^ a State plan which would be sub-
mitted to the Secretary for approval or disapproval.

Our jp«t>posed l^^blation calls for licensing standards in nine
arms, Tiuj^ areas nuue from looking at the business viability of
the institution to the educational viability of the institution.

We also propose that the Federal Government help the States
imy for Uie txjst of this increa^ regulation and oversight. Current-
* ly, States do either direct appropriations or institutions tiirough
share the CMst of State licensing and r^pilations. A strength-
ened State iKirtnership, however, especially with Uie establishment
of minimum Federal standards for licensing will require increa^d
costs which we believe should be borne by the Federal Govern-
ment

This model works well with the VA State approving agency
system. The minimal cos* of such a prograca would be more than
odnset by the significant savings and improved pn^^ram delivery
achieved through the reduction in fraud and abuse of Federal stu^
dent aid programs and funds.

Mr. Chairman, we believe that adopting the simplified approach
to determining institutional eligibility that SHEEO has proposed
would reduce the confusion and ineffectiveness of the prewnt
^rstem by unequivocally holding the States responsible for insuring
both consumer protection and ^ucational quality and by providing
the resources to demmistrate this responsibility. We believe that
the proper balance of oversight functions and responsibilities wiU
finally be ac^mplished.

We look forward to continuing, and we hope enhanced partner-
ship relationships between the Federal Government and the State
governments and expanding educational opportunity through Title
IV of the Higher Education Act.

Details of the SHEEO proposal in the form of l^ndative lan-
guage developed in cooperation with the New York State Educa-
Department and others are attached to my written statement.

Thank you veiy much for the opportunity to appear before you
today. I d be happy, as well as the others are, to answer any ques-
tions.

(The prepared statement of David Longanecker follows:]

ERIC

397

INCTnunONAL INTEGRITY: THE STATE ROIi

StMssent of
Davkl A. Longaneckcr
Executive IMredor
Cftersdo CommMon on Ht^ier EduoiUoii

Onbefaatfof tbe
State Hl£lier Eduoitkm Canecutire Offlcen AssoclatloB

To Ibe Subcmmltlec on IVi^ccondarj Educatlcm
CfwmHlee en Education and Labor
Vntttd ^tes House of Representatives

May 30, 1991

Stale H^er Educsilion Executive Oflkers
707 ITib Stmt, Suite TWO
Denver, CO »02(U

Mr* Qiainnafl and Membm itf the Subcomsnit^

today cm leaudiorizaticm of Ac Higter Educatioit Act. speofioOly on Ae issut (tf inttitutiorail
digMHyforibdmlsti^tasastanceptigr^ I vnDavidUmganecte, ExccoiivtDiftctor
die Cdlofado t::cminussi(m on Higher Educatm, and Pftsident-Elect of the State Higter
&iucation Executive Oflkeis (5HEE0) cm w)k^ bdialf I upcsk to ymi today.

As you know, institutioDal eligibility partidpatioji in the U^rdl stiKtenl aid programs tos
tTKlilionally involved the so-called TRIAD, a three stage {mora that iiKludw: bdng »xredittd
by a Iqptimate acciediling agCTcy , being Ucensed by Urn state In vvhich the institution opeiates,
ami being certified by the U.S. D^artmait of Education. Until i»ca)tly, there was general fid A
ftal the» three requiiements assui«d pn^ram integrity. Moumi^ig evidence, however, has made
it clear that the TRIAD is no longer achieving its purpose. The current system for establishing
insliniticmal eligibility is both confusing and ineffective. Little, if any, communicatKwi exists
among the three parties involved.

The reascm liw not with any one of the parties, but with all three. Our m^jor concern within
SHEEO, however, is with the lole of the states, which in many cases simply haven't done an
adequate j(* in the ^te licensure function. The states are highly inconsistent in thdr standards,
with some states aggressively pursuing reform of licwising j^acticcs and procedures while oihc«
lag behiml. Further, stamtords within a single state are oficn inconsistent and uncoordinated,
with multiple agencies paforming «milar tasks but using a wide range of standards and
procedurw. Unfortunately, this has resulted in a process that inadequately protects the
consumers of the education or training offered.

ERIC

899

TTi8t*s our hu^ofy. ^ ploase kmm thai SHEEO and the staM tie seriously inteiested and
committed to helfriog Testore in^rily to limittitkMial eligibUity through heightmd itttntkm to
state levd in^tuttonal aj^HOval activiiies. SHEEO and the states have confionted tfiis issue in
three di^iJKf ways.

First, a number of states tave initiated rcgulatoiy refenn to impnw ll« Ucaising of
postsecondaiy educatic^ instituticms. Within Cdomdo, fc^* examj^. the state l^slatuie last
year consolidated the xtgulatiiNi of alt private ocoipaticMial institutions within a new agency of
the Depaitnwnt of Higher Educaticm, This year, the l^skture established a tiaimng assinram«
fund, to assure that all stud^its have the oj^portunity to complete ^r educational progiam in
the event that the institution in which ^ey initially enroll goes out of business before they
complete their education.

Second, SHEEO has commissiorwd a major study of the methods and efTectiva^ess of state
ticenstng, which will be presented to our membership ttiis summw. This study will call for
national standards for state licensng to be adc^>(td by the fifty states. These stamJards will be
based m a s^es of universal priiKipIes that, regardless of the nature of state governance, can
be used to fuhion state-specific laws and regulations governing the licensing of postsecondary
instinitlcms. We believe that adopting these nationally uniform, stiengthwied standards will not
ody hdp asaiie better slate practice, but will also increase substantially the integrity of the
federal student aid pn^rams.

ERIC

400

Tiiiid, iad0KTOdim^y itbMft>tf»^^ SHGEO has pnqmed

qiecific ki^^ve langia(|^ is tte itautfmriza&m

lUs lioeniiiig tte o c ntepic c e of i&^tmicmal difibility for ftderal student usismot. (tht
sttadwd language has been revised from that pitviously aibmined.) We believe dds wc^ be
esiiitily appropriate and oonnslQit wi& federal policy goals* First, it est&Uisbes Ae
priinaiy tocus of leqionsUrility elm to tfie Bctuai soiiicc (rf rcg^ Ami, indeed, tiie strong
itoofd of die VA ai^uoval pooess demon^iai» that wd\ a piooess can work wU. Seaxnd,
it leiaias to die states what is ocm^tuiionally and hs»(fficany dieirpmroiiwnt leq^nmbtlity for
piovUiflg and ensuring qtffilityddivery of educatiosia] services. Finally, hplaoes the lion^sah^ie
of oversight responsibility for govern mental programs in the Ymn6s of govemroental bodies,
ladier dan ceding this authmty to private, mm-^yvemmratal accrediting groups, which for very
Icgitimale reascms shun away from a regulatory n^e.

Spedfically. SREEO proposes that Congress authcrue tte Secretary of Education to enter into
agre^nents with states. These ^reements wmld designate a single Stste Postseoomiary
Approvii^Agem^re^Kmsibteforqqmmng in^tutions and educ^ionalprogrvns which recdve
Title IV funds. This prqxml imild ncn require that Ucennng of institution
agency; only that one agency be re^K»mbte fsn cmifying r» the fodoal ipvenunent that all
Uoeosingbodks in die state meet diese minimum foA»d standards. In die event a state diooscs
not to paitic^sate, the Secretaiy would be (tee to eiter into agrseomts widi ottier rdiable
agencies or «ngamiationSt which wouM monitor the institmions in questioo using fodenlty lec

ERIC

401

ittHbrds i»c<»ntabUity and integrity.

Opeiating witiiin broad gukldines es^lisJwd by the fecretaiy. and conastent with the
tegislaiim), tlw iteagMttd State Pi^secomiary AK»roving Agency wouW establidi a state plan,
«*k*wouW be submitted to AeS«imiyf«a«m)valc»disap^ Our proposed legislation
caUs lor licejwng siandanJs for: institutional financial and aJminiSi^ve c^»dty; facilities,
equijmwat, and supplies; personnel; cuniciilum and instiudion; student support services;
admis^ons, academic calwdars. tuition charges and fees, grading, acatonic pn^ress. and
advertising: daei on enioUments, aiccessful completions, and finaiKss, mainlining audenf
nax^', and other «amJanJs that a state may legally require. Each slate would develop
qqpnqniate state level standards within each of these areas, and submit that plan to the Secretary
for his api»ova].

We also popose that the federal government help the state pay for the costs of increased
Rgulatimt and oversighL Cunwitiy states, through direct aj^ropriations, and insUtutions,
through fees, share the costs of state licensing and regulation. A strengthened federal-sute
paimership, however, especially with the establishment of minimal federal standards for
licensing. wiU require inctased costs, which yft believe should be borne by Ae federal
government, litis roodd works weU with the VA state approving agency system. The minimal
costs of such a program would be more than offset by the significant savings and improved
ptognm delivery achieved through the reduction in fraud and abuse of federal student aid
programs and Auids.

402

Mr, Ottinnan, w befovt that wJopting Oi^ wmplijBcd ^>|m»ch to iSttnnining InstiWioiial
eligibility di^ SHE£0 has proposed would redu^ the confimoa ax^ indfactivcnM of the
jmsQit sys(Kn. Moit cteariy tJdli«d rc^xm»l»Kiies wo«W i«du^
secaimwgthem^j&yers. By uncquiwcally hdding tfic states respiwible
cmitmer jsotectkm ami edwatioival quality, and by providing the rcsc»in» to demonstrate this
re^xmsibility, we believe the prqxr balance of oversight functiotis and leqxmabilities will
finally be accomplished.

We look fwivard to a continuing, and we hope enhanced, partnership bctwcwi the federal and
state governments in expanding educaiionaJ opportunity through TiUe IV of the Higher Education
Act Details of the SHEEO prt^sal, in the form of legislative language developed in
cooperation with the New York Slate Education Department and others, are attached to my
writ^ statement. Thank you for the opportunity to appear before you. 1 would be happy to
answer any questions.

403

A NEW FEIKRAL PARTNERSHIP

ro» ASSUMfiG ijsrnvnoNAL iNracRmr

AMENDMENTS TO mCHER EDUCATION ACT TITLE IV

TOe W of the Aa h imcmded Seokm 4^

•DEMONSTIIATION GRANTS FOR IMPROVED
AI»flNI5TRATK»i
AND THE REDUCTION OF REGULATORY BURDENS

•SEC 4^a)PtM«mAufl»riJ»J.-Hl)TT»Seci«iiyU«i«^^

SSS™Sr» tte aclmJnIsmton of itudem ittJaaiwe prDgrim. ■»ahori»d>>y *J

'*^) NO itenKm^mkK, g«m ™y

sdHnitied to «l« Secretary a «ud> ti™. to wd. nwnn«

to cairy out ^ proviilons of dito secAoa'.

TWe IV of the Aa i» fimte amended by adding at ll« end thereof

•AUTHORIZATION OF APPROPRIATIONS FOR
ADMINISTRATION EXMNSES

•wr 492-Ttatare»tt«hortedlDbeipjm>priitediuch>Bim«maybei^

out thli thle. Including expewes for staff penonnel and compUancc aetivttiea.

TWe IV of the Higher Education Act of 1965 i» •mended by adding at the end ito
following new part H:

•PART - H INSTTTUnONAL INTEGRITY

•FEDERA-- RESPONSIBILITIES.

•»5F^ 4W(ai Pcrfomwnce Standardi.~{l) la o.-der to »«ngthen the adminutrative ^^'^J^
Si^SSS^islon. of thU titk. the S««ary rt«H. S^T^^S^r^^
ofJS«-^^ eSibte tesHtutfom. guaranty ^enciea, «Jucatlonal '^'^J^^^
«e^«^^in and other appropriate public agendei and Boni»ont private

by this title.

•G) In carrying oirt thta tlw Secretary dull-

-(A) provide fbr the conduct of program reviews on a syateroatic basU designed to

1 1

ERIC

404

"(B) pn>vk!c for dm cofiduaof recotifkatkm Rvkwsof capobUlty
flnuidi] lei^its&ntty of intiitutkm over a 5-year p^iod on a ttfge^ tmU usii%
ob^^ve otola, &)|^»Nf i^mUknis for aiiKHnaik reoeitifkfikm and on-site
revkws of sud) in^itutkira.

'(b) Infommkm Requbed.— The Scmmy ^1 requhv all ellglbte instltrnkms to sutmilt to
tftt Dcpartmciti demited information on revemtu and expend Hurei of the institution.

"SEC. 494.--NO aconeditii^ agefKy <»r modtitkm may be ^^ovcd by fbt Secretary for die purpose
of this t^, unleu the agmy or as^^ci^^ meets the ^mSaitls estal)lhl]^ by dm Secretary
pumant to tfiis KCtkm. The Secimry sh^l, $fttf and opptxtari^ for a tearing, est^Ilsh
die «t»)dards. The ttandaids shall tequire that-

the aocredUhH^ ^ vmiaakm mm be a std^, regicma), m nas^ms^ a^»)cy or
ftssod^m, and must demonstrate the ability and experience to opcvm at an accred^ii^ agency or
association widik) die state, region or rnddotally, as ^mqyriate:

"(3) agNtcy CH* mociation acmdid insttrndons and/or programs of higher eduoffkm;

*0) sudi agency or assodaikm maintains a clear dlstinoion from any professional or trade
oTfanizatlon having a r^^ mentership; ami

*(4) such agency or associ^n a|^l^ standards of accmSitatton that d^emUne dmt the
servteM, curricula^ f^hy, focllitin, and fiscal resources of dw institutions of higher educ^on and
die achkvemems of Hs stiutos are of suffkknt quality litat each such institudon provides
satisfactory education and traliUf^,

*(5) such agency or asm^tion notifies the Secretary and dte dpproprisst State I\>stsecondary
Approving Agency in a timely fashion of any approval or accreditation of an eligible institution, any
ctenial, wididrawal, or termln^n of ^^val or accredtt^n of an eligible instJtutbn, togetto* with
any ^her neg^ve actk)n taken widi respect to an eligible institution.

SEC.49S. STATEMENT OF PURPOSE.«It is the puipose of this part lo audtorize die Secretary to
enter into agreements diat wmild-

(a) establish one State I\)st$en>ndaty Approvir^ A^ncy in ei^ Stare to approve
poitsecondary inftltudons and educations] programs for the purposes of this Htle; and

(b) provkie Federal fimds to each State Approving Ag^mry for performing die functions
required by sudi agreements widi die Secretary.

SEC, 496, STATB APMIOVING AGENCY TOCXIRAM ESTABLISHED.

■STANDARDS REQUIRH) FOR APPROVAL OF
ACCREDITING AGENCY
C» ASSOCIATION'

•STATE APPROVING AGENCY PROGRAM*

405

W HWXaAM AUTHCHaTY.--The SeattMiy than. In accmSsice «^ «kd irovUkmof

SE8» ^ to enter bsfio n i^msKm Ihe Secm»y to di« p«^^

ofttit put ^iMA to mo &a», with mpect to wA Ststt, Am be demed m tvto » oto

^i^oprlile mrn^tsoMM made by die S^muy for ^ognsn iq^roval to tint St^. If «y

^ iiy t i f u ri nw tfi p ftrtkipate fai aud^ MaftttMB pfMrami mftiiwtod imdw ddi TOc mt n«

offering ff ^M * ^"^ pf p gfims fai a l^c^ (e.g., medteal schooli ch- sdmis lock^ed to U.S.

t«te^)> die imviilom of thb iwt iili^

be deoned to rt&r K» die Secfet»y.

b) AUTWMllZATKW OT APTOOPRIATIONS.-For ttw pmpw of cittl>Ung die Secretary
10 mdie peymems to 5t^ have maife ^ptme^

b ai^ioriied to be a|^x)|»1ated an mom. tka to exceed one percent of die stwtem fins^
assistance pipgrans lUnded unto dtis TUte to fis^ ^ 1993 and succeeding flKal years.

(c) REIMBURSEMENT SUBJECT TD CONTINUING COMPUANCE,-'n» SccretBy
sfaaU make paymoas fbr i^reemema cmly to Smes u^id) comimtt to meet die reipiiremems of dwir
agieenKx^.

(d) EFFECTIVE DATE.-'Hjis program shall be effective 12 months after cnactmem.

SEC. 497. DEFINTnONS.-Ftor die puiposcs of titls part--

(a) d» term "State" means each of d» several States, dvc Dl«rict of Columbia, and die
Commcmcahh of Pi^rto Rico;

(b) d» term •instfeaJon' means an eligible in^ituikm defined in $ectk)n 435 W of dib Title
or an famtoition iteflned In scc^ 481 of tiiis r«Jc dim (i) has em^ imo a program panfc^wtion
agimned die Secietnry as described in scdkn 487 of dt» Title and (ii) has a tc«al annual
emoUmem of 100 or more stutents;

(1) a postsec(mdary educatk)n program provided by an iimitutjon defined in nibsectlon (b)
and leadb^ to a d^ree, eerdfte^, or Gdm educAkmal credential recognlxed by die Statt in which
the program is offcied;

(2) a coiir» of po«secondary study nc<»ssary for enrollmem In a program defined In

pnagnpb (1); and

(3) a ^Dgram of postsecondary vocadonal or technical educ^n provided at an imtitution
defined in nibsedkNi (b) and designed to pr^m individuals for u^ful en^loyment in recognized
oc cu p a ti ons.

SEC. 498. STATE APPROVING AGENCY AGREEMENTS.
(4 STATE ORGANIZATION STRUCTURES.-'

(1) Eadi agreement sl»ll ^s^lbe a St^ organi^attonal structure dutf includes every
lnsdtud(»i, deflwd hi aecdon 497(b) of diis part, in die StM,

(2) F^ die purposes ofddspm, die sekc&mofdie State RstHy authorized to act on behalf
of die 1^ fe^ die purpose of ent^ing htto an aipeemm wtoh die Secretary sha^

wkb die State taw of each hicfivfahial State widi re^ct to die audiority to make 1^ agreements

406

betwm tiie State ml te Moral Gov^ianem.

(3) In dih ihan be coimnied 10 autlmise tte Sec^^

iOopt, a a condkkm fi^ msxiag bt&> ss ^sreanem, a ^fte ^ i^ganiuttaial stntauia.

(4) Ntehbii to titte i»n ^ be omtnied as • ilin!t^b» cm ^

adofpi a State c^iai^zttkm itmtoe for po^secondaiy cih^tfkm ^ades. bmiuidoiii, or pit^rams
which it ap^MTc^Mlate to tfie neecb, tradition, wad cixomamm of ito S»e» « as a lisnbatto m
the luihwiiy of a eittrliiig bsto in agreatiem pursusm to Als part to nvidify Staia
OfftnizatkmaJ stnicturB at siy time sutoequem to bm) fiK:h ^res^

NbtwiAstandl^ tfie proviskm of |^;«gr^ (2). (3) nd (4) of dUs «d»ection, die

Secretary may lequire each &st» to deirtl^ an or^nkfikmi! fifuctme, tub^ m the UmStatos of
I»r^gn«to (2), p) and (4), ditf bKOfporatea every histk&akm. as defltied b part, in that Statt
aspsrtofdieagieen^tipuiittamtodiUpart. The Seoetaiy sha^< {rovkie to eadi State, at intervals
to be qsedtied in regulatkm, a of every institmion duu shall be iimrporated Into the
ofgmizationa] structure of such State fi»rd>e imri^>sesof thispn.

(b) CONTENTS OF AGREEMENTS^-Agreemems betwmt esd) Stite aid dw Secretary
shall comabi the (bllowiQg femres:

(1) D^lgnatkm of die State emhy responsibfe for grandi^ &ate aidiorimlon to each
iiudtutbn diat State to off<^ pos^econdvy eductflofl;

(2) I>esifriatton of d^St^eiuHy re^mslble for assuring diateKh in^

remafaw bi ctm^llancc Mith &ate rcquUwiws for offering pcmseconday eduction imgrams In dut
St^;

(3) DwJgnmion of die one St^ Pbstsccondaiy Ai^rovlng Agency dvA shall f^ieseni all
entitles of diat State designated in paragraph (1) and (2) of d)is subsecUon for die purposes of dds
part;

(4) AssuranccsdimdieState Aj^ving Agency will admini^dteprogrmaudm^
diis p«t and will keep »id) records ami provide such infommion to dte Secretary as may be
rei;^tested for fiscal audit and program cvaluaiion, consistent widi tite lesponsIbUhies of the
Secretary;

(5} Description of die relationship between thai State's State Api»ovii^ Ag^icy designated
for die iHtrposes of dils part and bc^ (I) die agency or agnrd^ designaed for die purpose of
Ch^Her 36 of Title :U of die U,$. Code and (il) die State loan insiume program established under
sectkm 42S(b) of diis Tule; sid

(6) Ran for perfiwrming die fonctions described In section 499 of diis part

(c) FEDERAL RESPONSIBILITY. -Nolwidisianding any odi^ proviskm of law, no State
shall be required to folHIl die oblig^kms of an agreenwm widi dte Secretary uncter diis part unless
d ' *:ecrttary reimburses dial State for dm Federal cosu, specified in walon 498A of diis pan, for
performlf^ dw State Aj^roving Agency functions requbed by sudi ap^ment and no State shall be
required to enter iiHo an agreemem widi die Seo^tary under dils part unless the Congreu
appropriates die fonds to pay diose F^ral cosu,

SEC.498A. FEDERAL REIMBURSEMENT OF STATE APPROVINC AGENCY CC»TS. The
Secretary shall reimburse d» States for die costs of performing State Approving A^ney fUnctkms
required by agreements widi die Secretary audiorffed under diis part. Such costs shall todutfe
reasonable and nmssxy expenses of salary and travel iJKnured by nnployees of sudi agencies and

407

aOowftoces for atoioisfmive ocpmes. The Seemly mqf alio such ageiKks

p erf br roe d by thek B^amtrsdon ivhm »idl wwrk has a direct retekmhip lo tbe lequirmems of
tgreemesti dip Sw^cuuy.

SK:, 499. FUNCTIONS OF STATE AITOOVING AGENCIES,

APFEOVAL AirnKHOTY.-TTie State ^^vh^ ^ency s)»]l i^mve an faisdtiitioii
fi^ the paxpi^ea of thb pan die fi^lowii^ cmKtbm ^

(1) TlwfaAiti^motefaishi^fi^Kirizatkmtoolferpr^^
standards for'-

(A) FbimW aiKl adnMsir^i^ capadty at a ^)^ifM scale of operatkms^

(B) Facilities, etiulpmem, sid »ipp]les;

(D) Onrioi^ ood instrudiQo;

(E) S^ti^it si^rt smrkes;

(F) Admbsicmt acadrnk c^miars, tuHmn dmrges aini fees, giadii^, ssademic
progress, Old advert}^;

(Q Sidmritsiagdtt»iddocuirMmssonCTi>Ibnents,cofi9l^^ fkums, and odter
topics;

(H) MUnteining «udem records; and

(I) Other stoidards a State may teg ally require.

(2) Hie InstHidksi ftemoimiates that H comim^ to comply ^andard$ related to
ptfagrapli (1) of diis subsectkm «id ^ achkvenmu of iu stiKknia are of sufllckm qualiQr (hat
it pnn^ satisfoctory education sid training.

(3) ]f a Kate does not haw State staraSards related to paragr^ (a), dtt institution shall
meet standards presoibed by die Sccmary through regultfhm or duough an agreemem with such
State.

(4} If dw State Approving Agency usa eidter (i) a m ed U a ti on by a pHv^ accreditii^
{^ncy body tx (li) con^liance nuSHs performed by a State gusvity agotcy e^ltshed under
sect^ 428{b} of dsis Title as a sub^huse fc^ Stme ^roval of con^liance widi standards in
paragrapli (!), such substitudon shall be provided in an agreem^ widi die Secretary.

Q>} DIFFERENTIAL STANDARDS FOR AmOVAL.-A State ^^mvii^ Agency may
establish diffisrent standards ofBpprov^ for different classes of InstHutkms as defined by its relevam
State Imi and regulations. However, a Sta^^^vii^ Agency must ha>« some publl^Neds^tdard
of qjproval for e^ paragrq^ in subsection (a) par^raph (!) for eadi sud\ class of instltu^ns
unless the agreem^ the Secr^ary un^ diis pan ^Hkally exen^ sudi classes of
inadmdons as defined tyy die State.

(c) DISAPreOVAL AUTHORITY, -A State ^jprovlng Ageiwy may delcrmhic thst an
in^itutkm or ecbcational profpam shouki be dtsai^roved t^oed on its own findii^ or the fl»l'mgs
of a Federal ei^ity.

(I) STATE APHIOVING AGENCY FINDIN(».-If a Stale A^wving Agciwy finds dm
V) InstitudCQ ia not In compliance «vhh standards established for sut>KCtto
Agei^ must notify die Secretaiy of its fSndii^s and d» actfons di« such Agency Is taking* or has
taken, in r^xmse to nidi findinfs widiin a time period prescribed by dw SeaMfy's regulad<ms.
If a StM Approving Agency dltaff^wm an in^ltmion or an educational pro^w at an btstinttkm,

ERIC

Ikl^ Secitttnf 1^ notiiy the Sin Ai^Tpv^
iim^iakffiO of sBdi Kticm vdAin « period

0} nuxHitWAL raai«rriDhES roR Di^^

llde and iBidBr the relewi tews of die ^Mes.

(d) UMH'CmmTEAITROVIhKSACiENCnrnJN^^

ftmcdofts ihifl not tecJudp ^lo* (D perfombi^ financial and compjisiee aucto as nuy be ivquind
tmder «ibi ect ten t 428 or 487 of ihb Ad or (it) asnnntag finaocial UabOHy fcr (Mm agaiim
im ti t u tfcmi iwlikli have been ^i|»oved by wh ^^mk$^

(e) CONSUMER CX»4PLA»rrS .--A State Aj^provk^ Agsncy riiaU estdiUsh procedmts
fcr ftoeivk^ and re^mting to amaaa m^laims abntt appnmd ins&t^toia ml ttiaQ keep
iteppdsoffi^compyntstemSertodABrnilneil^f^^ Insttii^ons.

(0 reRSONNEL DEVEUMMENT.-A Ai^jmb^
c omla ufay trifling to to own pmcssnel and otiw pencmel in to Ssw, indud^ penonne) it
InsttnoiOQs sidi;)ecl to ^pmal, to smv fl» purposef of ^ part

(g) ENFORCEMENT MECHANSMS.-l^lr^ In dib I»rt lhall restrict die ainhortty of
tbe States w ataMiah mechaniimi lo ei^me ibe Mndants caaMhhed in ti^aion (a) or rtqakt
die Sme$ to enablldi giedffe neehanlms monvnoaled t^ die Secirary. The plan i^uired in
Section 498(bX6> nmy faiehide, but not be Ifantod to, ludi medmifmi as:

(1) Anes^testt finance Steeoversij^ and pioteaaga^

0 Cmbicttng on-siia infot^iatens;

0) Pmsbigdvn or criminal cbarfes against bmitud^

fines;

(4) Inyo^ pre-enmnment academic standards for itudems;

(J) R^ubtii^ die use of p^ recrvtors; and

(Si Esti^tlshing dlsckwn; and r^ning requirements on insdtuti^

409

Chainnan FoBD, The committee will stand in recess for a few
SS^wii ® we go to vote on the rule on military construction.
bSk^re ""^^^ as soon as we get a member of the m^rity party

gecess.]

^^^MtJUyes. [presiding] I'd like to call on the next witness. Dr.

« J? thank you for the opportunity to

SIS^S testimony My name is Thurston Manning. Ym the Presi-
dent of the Council on Postsecondary Accreditation, which is com-
monly called by its acronym CSOPA. COPA is a not for profit or^
SSa? ^ accrediting organizations that miet

COFA 8 mm criteria for recognition and have joined together in
suprort of various professionaractivities. COPA's membeil also in-
tion ^ national organizations of postsecondary educa-

extended written testimony, which I know
wiJJ appear m the record, and I do not wish to repeat too much of

objection, you have unanimous consent that
your statement will be a part of the record of this hearing

Mr. Manning. Thank you very much. I do. however, want to em-
phasize a couple of points.

The first is that the integrity of the federally funded student fi-
nancmJ assistance pn^ram rests on a great many pillars. Repre-
sentatives of some of those pillars are here at the witness table Siis
morning because they inclucte the guaranteed student loan—the
fpwrmity ai^naes. They include the State VA agencies. They also
mclude the students and the institution themselves.
-1^ ypw naw heard, the beginning of the entrance into the Feder-
^ program is accomplished through the department's
fi^S^S process, a process which reUes upon two elements: the
tUBt, State approval, State authorization, for an institution to oper-
atejand, secondly, accreditation.

The Feder^ Department of Education in operating its eligibility
and certification activities also has the authority to provide addi-
rertm<aSra^°*^** upon an institution in granting exility and

This three^tmgwd arrangement of the States, accrediting agen-
aes and the Federal Government has been in place for almost 40
Jjars now. It is a process that has worked reasonably weU, al-
though it has experienced severe strains in recent years, laiiely be-
cause of the strong development of the guaranteed student loan
programs.

It is a process which requires cooperation among the three com-
ponents. If any one of the three components is weak, the process
aoes not work well.

^ morning and in the written
t^tomroy mdicating that there are difficulties with tiie State au-
thoriration elen^nta and the State Hifl^ier Education Officere have
proposed ways m which that mi^t be strengthened. I agree with
U^m tJhat tiiere are prpblems m the State autiiorization proce-
flures. The State regulations are a hodgepodge: Over 50 jurisdic-

417

410

tions are involved; th^have different statu^; tihey are adminis-
tered with different efifecUvenoB m the dmerent states.

dollaxB of Federal money each y^r m V^^^^.^^ ^te
produce substantial and ^nificant »mprwements
thorization elements. I think Uiey do need to be unproved. 1 tmnK
SSvState ^pra^biUty. And I think the Federal Governm^t
^l^^ in^^ZTke States to do so without fundmg the

""SiSrS^I beUeve that the accreditation activiti^ w^^
provided by private nongovemment^a^iMj^ "tS^'^ v^t

SomoSs™oir expeSte tM^'S'SonaSTsS?^^^^

is essentially unavaUable at any pnce. 1^ ^^^f^.^V^^J^
Si^and it is provided free of cW, for the benefit
ISmand its rtudents. And the public disclosure of the accredited
^{SS tiSt tSedby the Wral Government as a compo^

""xhe^iSi^tS ^^"^ be strengtiiened, particularly as
hJte^S^^S^SSttere, with respect to the exchange of mfom^
S^oM the components-the Federal Government, the StajM
aSd 5S a^iSit^ fidies. The Federal Government cou d provide
Tsu^STteilat to both the States and the ^^^^^^'^
by^^ in an information ^^^^J?^^^^"!^^^ ""^
ment that is common in the whole e^»bility procedure,
^e accrediting bodies, the States, the Federal Government com-
plSliHnJSh^^t simply bemuse of them ^1^^
Siental and one is nongovermnental, but ^^^^^^
bodies, unlike the States, stretch across Stote boundanw. iftey
t«nd to be freer of the internal pohtical arguments that oa:ur
JjShinStetwlSd which, in fact. do%ffect State authorization sta^

"WiSSSf cS^mment. on the other hand, in P«>hib«^ ^n-

stiStio^Sly from dealmg with qu^ions of^X^^StiS^
curricular content, graduation requirements and other edu(»iionai
SSSS ThSTmiSbe dealt ^th by the accreditmg bodies and

^Thf rSeral Government has its own responsibilities and, as the
actoSitrator of the Federal financi^ aid programs, needs to
ItreSthen its own activities. That's been documented m other

rctLtViSt to^&A this triad-the States, the

mentary activities. They complete one another. They need lo wore
S SrtTand all three of them need to be unproved at the

*T3^ ™t to point out that there are systemic problems to the
pri^ SSdent Cncial aid pr«f^ that can {«^»SS«^t ^
S^Congress needs to address. One of these m the fart that^
Federal^iaranteed student loan P««»^

law» amount of money, which has encouraged unfortunate and un-
SXSSSrSi some caies, increases in size among educational msti-
tution.

ERIC 4

411

In my testimony I suggest tbat the amount of Federal loan
monies available to students in a given institution might well be
limited, based upon past experience, simply to coatrol this unnec^
saiy or unwarranted increase in size amoc^ a single institution.

I also suggest that the Federal eUgwility process could be
strengthened on the Federal Government side by requiring not
only State licensure and ameditation, but by also insisting that an
eU^le institution have public representatives on its governing
board so that there is an outside look at the activities of the insti-
tution at the highest level, and also that the institution provide
rq^ularly an annual certifl«i external audit of its financial activi-
ties. These two requirements would strengthen the eligibility proc-
ess, and I think would do a great deal to deal with the most potent
id>u^ that have been uncovered.

Mr. Chairman, members of the subcommittee, I would, of course,
be happy to answer questions and provide additional documenta-
tion if that is desired. Thank you for the honor of being with you.

[The prepared statement of Dr. Thurston E. Manning follows:]

4 1 :i

ERIC

412

WRITTEN TESTI«)NV
Presented to ihe
SUBCOWIITTEE ON POSTSECOH01IRV EDUCATION
of the

CoflMiittee OD EdMMtion and Ubot
$. Bouse of Representatives

Thurston £. NaoBiag
Freaideat, Cooscil on Postsecondary J^ccredltation
One Dttpont Circle, N. Suite 305
Vasblnyton 0C 20036

May 30, 1991

Depreaentativt ford and He«INrs o! the Subcowittee;

Ny naee la Tbnratoa E. Manning* I aa Prealdeot ot the Council on
Po8t»ecc«dary Accreditation, cowooly called by itt acron^. COPA. COPA is a
not-for-profit organisation vboae mters are accr^iting organizatione that aeet
CSPA'a criteria for recognition and join together in anpport ot professional
activities. COPA's a^ers also include s«?eral of the national organizations
of postsecondary edacation. COPA, a non-governMntal organisation^ is supported
financially by annual dues fro* its Maber organizations. COPA is governed by
a nineteen person Soard of Directors^ soae miberi elected by its imber
organizations and som by the Board itself. Three of the Board mst be persons
representative of the public.

Hot all accrediting organizations are Mbers of COPA. Soae have sot
sought Miberehip. Som have isauired about Mtership and have concluded that
they did not vish to Met the provieione for recognition. Bovever. OOPA Mi^re
include Mst of the active acertditing bodies, including all of the regional
coMissions ehich accredit the Mjority of public and independent colleges and
universities* seteral of the accrediting bodies that deal principally with for-
profit schools, and som forty of the accrediting bodies that accredit progress
rather than institutions.

Is additiM to ay experience eith COPA^ for twelve years before coving to
COPA 1 vas the executive of the Worth Central CoMissioe on Institutions of
Higher Education, vhieh aecredite som 900 colleges and universitiss in a
nineteen state region centered in the aldvest.

The BubcoMittM has asked that I address the issue of integrity in the
Federal student financial assistance progrsM. The integrity of thoM prograas
rests «> Msy pillars, including the integrity of the student recipients, of the
institution they attend, and of the financial institutions that Mhe Federally
guaranteed loans to students, aaong othere. It also reets on the three agents

413

•lanning TestiBonv fay ^0, 1991 ^^''^

that toQHher provide Initial access to the various Drograss. Several Y*"*" «qo
thpse three a9Mt8 «er* dubbed the "triad." a ter« »(hich is useful, hut vhich
does not denote «ny oraanization or tornal connection a»n? the parts.

The three agents constituting the triad are the states, which grant the
leaal tuthoritv lor an educational institution to operate and cooler decrees; the
accrediting bodies, •blch grant accreditation to the institutions; and the
Federal govern^nt in ptrticnlar the Departwnt ot Education -- which by
totMl action grants eligibility to institutions to participate in prograas ot
federal student financial assistance and subsequently certifies institutions as
qualified to participate in specific proqrars .

The accrediting bodies differ sharply fro. both the states and the Federal
government. Accrediting bodies are private, non-governMntalorganizaaons. The
accreditlDg bodies that accredit institutions (as opposed to ^ educational
are organized as not-for-profit corporations. Accrediting bodies
re^"e «o tax Jies for their operations and activities. *»
organizations, they have no legal povers to enforce disclosure of
to punish transgressing institutions. Their "f«i°f«

suasion, public disclosure and, of course, ultiwtely the .ithdraval ot
accreditation.

The process of accreditation has developed over the sose ninety years since
accreditation began. Vet its fundawntal characteristic has re.ained constant.
That characteristic is peer review. Those establishing the standards lor the
IScreSiUM decision those gathering and interpreting infomation t*«"ng on
"hether an mstitution or progra. conforw to those standards, those .aking the
diciston all are dra«, fro. the universe of accredited institutions and
program. This process thus shares the advantages and drawbacks of all peer
revle*.

Foremost ««ong the advantages is the undoubted •'•P"*^''* , °'
participants: only vitbin the accredited institutions there a sulficien
Zply of persons Mde co.petent by experience to judge the <J»^]»ty °*
educational institutions. Accreditation has also developed as an ftivity
rS^ Atbln education as a professional responsibility: " a result Jo^e «jo
narticlMte do ao *ith little or no personal wnetary gain. Each year thousands
St JrofeMloMls fro. our educational institutions devote hundreds of thousands
Wt hour, to the accrediting process- To provide this rich resource through
JoverLntal «.nr.ould r^Sjire the expenditure of .llHons of dollars annually
it indeed it could be provided at all.

This supply of professional expertise is essential to the f
process because its accrediting decision is, at botto., a professional 3U<9««"t •
a Jrotessional ludg«nt it retires aiwn, those who «ke ^t "ojoub ed
o«iv*rfifi» This is obviottffly trae when toe crilena xor
Se3!Stin arr,en'ral. ?ut it is also true .ben accrediting standards are
a5S»nUy 8i.ple and specific - for the toi^ul.tlon tTS
«t!nd.rds is itself an exercise of professional JudgMnt. In dealing «ith a
«Sn;«ui; « c«plax a. an educational institution or progr... with so .any

ERIC

414

Page 3

iDierdependeBt ptrti, it is liapiy not posaible to identity « f-. nu«»rlc
K«ur« tb.t uk« a ai^,le aioury and pe«il a rapid aad ea/y Judi^n?^
■ade b, anyont. An odacational i»atlt8tion or pro«r» Is not slily a wSecUw

M «c\ i„Ti.l i'ir'^r nV"'*^ ''"^^^ »u^raTlt« »«cces.f«?oper>t is

M auch ID tb» interactions awsg it« parts as in tbeir iBdlvldul aualitv Thl

VtS^J'^'^^f ."l iBstitntioBal or pro^ra. ,n«llty »eSr to b2 . "o'usUc

li^rtiA? " '! -ccreditiD, organizations lo Cvs access to slrt

expertise is an Important consetjuence of accreditation as peer review.

•ccredmno^.^cfr.Jl^L"" ^" <»r«»«cks. It can be a lengtby procedure because
«!rff2; ? «tl»itif« are not tbe full tine oblivation of aost of tbe
fJI ^^n"?,*'- therefore be fitted in iMsg otber obliflations a procesS

aesired Mtf>ersbip of a visiting teas or co«lttM. Accreditinq oraanizatioBs

pi!r« JLf "f""" " accrediting declsloiT

Peers have .uitiple interactions with one another, and peer revie. wst onard

^ organi«tip". bJveTongbt t!

deal with sucb probleu by establishing strict rules to guard against conflicts
of interest in the process, and by Incorporating poblic representatlves"nto Ih^
Ll:!^. necesLT to". defeJs^iiK

c"!e"; 't'^'iSrb;"'' rrff J"""' '-"^ a*s:is.iJn,Tsubiis^;j th

. J ° " or progrsB. often tbe criteria are voted

OB and so accepted by tbe institutions or program affected Tbe MpAers of the
n'r'oe '"V»' fro- th~ institutiSiS

?Sf»f.^i"" »l»"ors, and assign tbea to the tesM. The

iBstlt«lons or program being evalaated are required to wllact^ self-
evalaatioB, using tbe accrediting crltsria as gnides The self^MlH.tiM <-
doc»ented, usn.Uy very .,t.n.l«l7"^ tll^ dSJsit, Song lith snch pSl c
Hterials as tbe institation's catalog, serves as a b^sis for a visit bTth^

^ '° valldate tiYBfor^tioL in Je

iB«or«tion ussfBl in reaching tK

SS^^fiJ^r.^i^i.tl'.t'!:^*"-^!' "^^^ «««»"r "^fc-rs, governing

o^Mr!7r!!.<».^l rollotlng the visit the teaa

prepares a rrltten report on its findlMs. The renort i> th»n »«1mmmi »v-

S2i;r^i»" VT'.T ""i-ti"^ ai^js'K Viv'.?\,s:rt'^t,"o

coMent on it. Finally the reports and coOTsots com to the co^ssion Vhicb
Z'iiill' it "«» -altes th. accrediting ^sim. ?bSt

decision «y be .pp..ied to .noth.r body if it is .dverse to the institntior'!

Th*rB ?p! '~r^'!lM*^/??"*''*,^°^" 1" " .ddition.l scrutiny.

There ar. periodic fall evalaetions for reef firution of accreditation- iL
period varying »itb the patterns of the several accreditlBg lSe7 lit n,na 1?
several years in length. Jlccr^Jitlng co«is.ions regnire awreSit^ iS im'ow
and program to provide periodic reports, co.*.»ir«.nB.lly. These allow tSJ

ERIC

415

fUnning Testisjooy - Hay 30. ^^^^ ^

cowRissioB to becoiw avare of changes tbat oaf alfect tfte accredited status, and
BQ advanc* the time lor a full evaluation. Accrediting co«*isaioB» resjwnd to
cowplalnts about their accredited ioBtitutioij aad prograw, aod the pattern o!
such co«plaioti aay also suggest advancing the ti»e lor a lull evaluation. It
is ccmon practice aaong the coHissions which accredit institutions to have
ittteria tea» visits focused on articular problems or lasnea; the tiudlngs of
such visits becoa« part of the information for the next full evaluations as veil
•s aftecting the timing of that full evaluation.

The accrediting process, just outline, is clearly a complex one. It
complements the processes appropriate to the other two co^wnents of the triad.
A State, as an authorizing agent, must employ sta^ards tor authorization that
can he applied to institutions just being established as veil as those already
in operation, since vithottt state authorization an institution cannot
legally. In contrast, accreditation is not granted to an institution until it
has been in successfnl operation for a period of time, h state is influenced by
local conditions. The accrediting bodies deal vith institutions in several
states, and are much less subject to the pull and tug of local interests. A
state is a major operator of colleges and universities, and has invested millions
of tax dollars in their development and operation. An accrediting body deals
vith both public and independent institutions, and has no interest in furthering
one institution over another. None of this is said to denigrate state activity
in authorizing institutions. On the contrary, I believe that the states should
take a more vigorous role than they have as authorizing agents, for one of the
current deficiencies in guarding the integrity of the federal student financial
assistance programs are inadequacies in the authorization statutes and operations
iff many slates. The essential point, however, is that state authorization and
private accreditation are complementary. Both need to work veil.

Similarly the third component of the triad, the Federal government,
complements the other two. Constitutionally prohibited from imposing educational
standards on institutions or programs, the Federal government must ^^^^^^ /^f
tri&d partners to deal with edncational issues. »nt as an important provider of
funds to students, the Federal government has responsibilities in ■o«JJoring
vhether those foods are properly administered. Uike f
accrediting bodies, the Federal govenwest has available to it i^^auy
enforceable aanctlons. Like the accrediting bodies, but unlike the states, the
Federal governmrnnt's interests span more than one state. It is clear that tne
componenti of the triad, the states, the accrediting bodies and the Federal
government, have complementing powers and interests.

Experience also shows that the triad has be' n less successful in recent
years than it would like to be. iising defaults in Federally insured student
loans are a symptom of difficulties in the integrity of tb«/«<^«"^
assistance programs. «here are the problems, and what might be done to deal with

them?

Ve must be careful to recognize that the causes of student loan defaults
are complex and not as obvious as some analysts with axes to grind would iiJ^e^o
think Thus we hear that high default rates are tied to low graduation rates and

ERIC

416

ManQing Testimony - Hay 30. 1991

low placeaeot rates; the pUtuible reaaoa Is that tbose viio do not graduate or
wbo do not find job* caaoot repay loaaa. Yet a recent study ol 9ctiool8 of
cos«etolo9y loaod correlation between 9a«raBteed student loan defaults and
9radaatioQ rate or placmnt rate, imile we feadly need careful, covprebensive
and <iuafititatlve stales, tbere la an atmndaBce of anecdotal evidence supporting
the idea tHat tbe reasons for liigb default rates are coaplex. For example, one
California scbool, accredited by one of tbe regional coHis^ions, iias a high
reputation, a clean hill of health fro« the accrwlitlng coaaission. and a high
default rate. It is a school of driMtic arts, and it is not unreasonable to
suppose that the high default rate is sore a reflection of the uncertainty and
loir incoM of beginners in the theater than it is of the school's educational
guality.

»e should also be careful sot to be so ovenrhel»ed by the chronic cries of
problem vith tbe student assistance program that %^ overlook their great
success. Shile ve voald all vish to have a lover default rate for guaranteed
student loans, the fact is that the aaount paid by the federal goyermmtt for
defaulted loans is s^h, Kuch lees than the total dollars loaned. The Federal
guarantees have opened billions of dollars of private capital that has gone to
provide education for Billions of AMricaas* 1N> other federal program ni support
for postsecondizry education has Bade available anything lihe the dollars Bade
possible by the guaranteed student loan progras.

Yet ve recognize that the progrsBS could be aade such better than they
are. Sere are sobs suggestions for l^roveBent:

1. The institutional authorization work of the states is a hodgepodge* SoBe
states have reasonably good authoritation statutes, others have poor or,
in SOBS cases, none* Fwr, if any, states have invested enough in the
adBiniatrati<» and enforceBent of the statutes they have to provide a
BiniBAl level of public protection against poor practice* Substantial
iBprovOBent of state anthorisaticm statutes and state enforceBent vonld be
beneficial in iBproving the gnJillty of educational institutions.

The federal governBent cannot do tbe «orh of the states, and, in By viev,
should not finance the vorh of the states (as soBe have proposed) . It is
appropriatB* hoirever^ for the federal governBent to encourage state
action. l su99Mt that the Bilker Education Act Bake provision for
prefereutial treatBeot to schools and students in those states vhich have
authorisation statutes and enf orcMent of thtB that Btet at least BiniBsl
criteria to be established by the Secretary of education.

Such preferential treatBent Bight include exsBption froB site visits
conducted by the I>epartBent of Education at school expense as part of the
federal certification for progrsB participation. It Bight also include an
additional eoBponent of Federal interest subsidy on guaranteed loans. The
first vould benefit the schools, the second vould benefit the students.
Both foras of preferential treatBent vould 9ive incentive to a state to
beef up its authorization statutes and adBinistration for the benefit of
its citizens.

417

Hiinmnl Testiaony May iO. 1«>'»1 '"^'^

The Federal aovernroni should Improve the level and qwlits ot its

SSr*«. Tbe flt.ftim of Ihe Depart«nt of Muc.lton dropijed fro. *l»ut
8.S?0 Srsoa« to 8««lhin, over 4,000 durin, the past ^^f
dewrtWDt is underatatled - as the reporti of its Inspector General
It need, to have a staff of saftlcient size to carry oat »ts
oversiflbt responaibilities.

The Departwnt also needs to pay «.re "!/f„Ti°tu?JJrirL
inly the Pepart-ent can li.it. suspend or

j;' i^iMo^Tty'trtrVucr"^

Ue^ra^^'1ii";^"h^t'h?iecutive Branch is^f^

«Tn".^rr MJtiii^rc^^^^^^^^^^

tl,t it ad.ini8ters as it should. It i unnecessary here to repeat the
May specific sawstions already In the record.

The Oepartwnt could saaily i.prove •"'^""^^^^'^.^"''J/Jt^e
concern of the triad. In addition to ^^^^
authorization and accreditation, the \ll
elioiMUty that the school have representation of the
aovlrnlM board and Mke externally andlted annual financial
Hi™!! avaiUhle. Such r«inire«nts »ould not he excessively fc»rdenso«
??acSLS? bat they would disconra^e those t..pted to abuse Federal
tmaneial aid pro«raM.

riB.ilv there is »BCh that accrediting or9aniz8tions can do to li^roye
SeS «tlM5 Th« nsed to increase the spe«J with which they obtain
Inf oration fTo. their accredited institutions and act upon it.
SrdatV'S^JTtl^at shonld be ^nltored as a ~tt*r of routine
.*-7!-T!-! n«^r ■ and rates of acceptance and enrollBsnt; pl»ce«nt

v™tl"SSpn^«S^v^^^^^^ "^'T.V.l
S such air to one of these ele.«.t. by itself, or
tLItw will identify a problem school but rapid and unexplained
.h~li il a triw.r lor professional exa.ination to Identify
causes ot tbe chaises.

To do this Bssns Btilizinfl current technology, nat costs fff^Jf,
ABd data coUttCtioft ttc^nlauai.

418

Nanninq Tesiimony - May 30, H^l

Education, the oae co«»ob partner for every institution participatin? in
Federal stydent assistance programs, could establish a central infomation
sharing office to vhich the states and accrediting bodies could (orvard
intornatiOD and fro* which that information vould tiow to the appropriate
states and accrediting bodies*

It is important to recognize that the accrediting bodies cannot awnitor
the Federal prograas. Their visiting teams are coaposed of peers, not
trained accountants skilled at the details of administration of student
assistance programs. They are focnsed on educational quality, not on
financial assistance, Kor can they serve in place of state authorizing
personnel. They are not knovledgeable of state statutes and regulations,
and they do not have the legal authority to demand documents.

Let me make some specific suggestions for the Higher Wucation Act:

First, the language making accreditation one of the components of the
Federal eligibility process should be retained. As discussed above,
accreditation serves a purpose that neither the states nor the federal
government can serve. Its role should be retained*

Second, the language in place requiring the Secretary of Education to
maintain a list of accrediting bodies regarded as "reliable authority as
to the quality of education or training in the institutions or programs
they accredit" should also be retained. Accrediting bodies are non-
governmental; they are not franchised nor regulated. For the Federal
goverw»nt to rely on accreditation it must be able to pick and choose
those accrediting bodies it finds to bo reliable for its purposes.
Language should be maintained to faking only to educational quality:
accrediting bodies are not organized nor staffed to monitor the details of
Federal program, and thef should not be expected to do what they cannot
do well.

tlird, some of the systemic problm of the Federal guaranteed student
loan programs should be addressed. Ko increase in policing or regulation
can elimimate fraud and abase, and increases in policing can increase
harasmnt of the innocent. We need to make the institutions active
participants in the progrw* not merely passive observers as they are sow
(passive observers, I must add, who are often blamed for the disfunction
of the programs), Bere are some possibilities:

a. We know that rapid expansion of institutional size because of
easy availability of student lomn funds leads to probl^. In
some cases the institution simply outgrows the managerial
abilities of its officers. In other cases there have b«en
attMpts to use the availability of student loans to ''make a
killing." A possible solution: limit availability of the
total loan dollars made to students in a school to that need
in the previous year plus some reasonable increase (say 10%) ,
which could be adjusted by the Department of Education in

419

Naniii09 TMtiBony - Nay JO, 1991 *

cases ol individual school need. This would perait reasonable
growth in « school while diBcouraqing or Mking iBpossihle the
uncontrolled growth that has led to abuse.

b. Enroll schools as partners in guaranteeing the loans. Sot all
schools will hawe the financial capability to f^a[« ^Je
Federal role as guarantor. But those who wish to participate
as guarantors {aty ot the first 5% of dollars loaned) could be
encouraged to do so either by .ore faworaWe interest rates to
their students or by having available larger areunts of loan
funds available.

The Federal student assistance prograw have had a "^slantial and

unprecedented salutary effect on the Co?rt«,nt S

Itl mntiBUAd The triad of state, accrediting body and DepartMni oi

£1S ?1^ .^1d""£-con?inuU'« tL initial «»'i'>"i,^, ni^e^'Ts

!2re::'nt'*:s "pu^^^n? ^s;^r^arrre:ved■us^;r''^L^^orr,1ar^"

v«T«Jority of'thfToSi institutions participating in Ibe Federal student
?sllsta»« pr^rU perfor. well. «e need to ai. at doing better, not at doing

EITB

ERIC

420

Mr, Hayes, Thank you. I have only one question that Yd like to
pose, maybe, to the entire panel. I, too, would like to rid ourselvra
of a whole system of institutions which are not providing quality
education. I, too, would want to protect those students that have
been victimized by such institutions.

However, I fear that an overly pimitive approach could, in fact,
impact n^atively on access to many students, particularly minori-
ty students that are concentrate in populations at certain types of
institutions, such as proprietary schools.

Could anyone on Uiis panel respond to my feeling, my reserva-
tions? Do you think credence should be given to it?

Mr. Manning. Mr. Hayes, since I went last with the testimony,
let me go first with the qu^ion.

The problem that you have posed is an extremely difficult one. It
is very difficult to consider any kinds of restrictions, stipulations,
reductions or more vigorous enforcement that does not in some
way reduce access to higher education.

We have not been very sua^ssful in fmding any recipes up to
the pr^nt time. The current arrangements in the statute that
exclude from participation institutions whose default rates are too
high— we can argue about what too high is— do, in fact, reduce the
access of students to postsecondary education and will cause some
difficulties.

I think we have to balance and say we know that if we are going
to be more strict in admitting students or admitting institutions to
eligibility, we will in some respect reduce access. And we must
simply balance the question of reduced acc^ with the question of
how much we are willing to pay for providing that access.

Mr. Haves. Mr. Sweeney, you looked as though you wanted to re-
spond. Did you?

Mr. Sweeney. Yes, sir, I would agree with Dr. Manning. I think
that balance is really what we're striving for. And I guess there's
one other word that a>mes to my mind as well, and it's quality. I
think you can have acc^ and ensure opportunity without having
to delete or compromise quality. That s where my mind is at this
moment.

Mr. Hayes. Mr. McCormick.

Mr. McCoRMiCK. Yes, sir. I agree with the statement of a delicate
balance of providing access on the one hand and having int^ity
on the other. But I think in th^ dajns of appropriating $18 plus
billion a year to student financial aid, this Congress has the right
and the duty to ask the question, '^Access to what?''

And it has, I think, the responsibility to give some direction to
the answer to that question. When you take students and thrust
them into a loan pr^am and for whatever reasons, imfortunate
though they may be, they wind up not trained in a productive job
that they can make a living at, but yet they wind ^ip as a defaulted
borrower, this is what happens to them.

Their IRS income is offset, refunds are offset. Their credit is
ruined. And, ultimately, we take that student to court and get a
default judgment against him. I don't think that we've provided
any access to that student. I think we've irreparably harmed that
student. And I think we have to be extremely careful who we allow
to be eligible to participate in these pn^rams so that we can have

421

the kind of positive outcomes that Dr. Sweeney refers to. Thank

^*^Mr. Hayes. You do accept the fact that some of the students who
are thrust into loan programs should not have been there m the
firat place, that they should have been given a grant?

Mr McCoRMiCK. Yes, sir. I definitely thmk we have to maybe be
a Uttle more courageous in that area than we have m the past and
really address the whole question of the grant/loan imbalance
That'^s why I recommend-<)r 1 agree with the recommendation ol
the chairman of this committee that we should front load the
grants.

Mr. Hayes. Dr. Kipp. „ , ,

Mr Kipp. I agi«e that there's a very important issue of balance,
but I think there's also a certain degree of mwunderstanding. J
think the question of access to what and how do we assure that it
is, in fact, quality education or training is a critical one.

! thinit what we've seen is, in fact, proliferation of would
be providers of education and training, including a number ol
people who are more interested in securing the dollars than provid-
ing that training. In too many cases we've seen access to exploita-

****'nie closing down of particular schools that have abused the pro-
gram, the limitations in many instances of their ejigibihg^ to coiv
tinue to participate has not affected access for students. There are
other insSutioris that, in fact, are going to do a good job to provide
that training and assure those students get the kinds of jobs they

I think there's been inadequate attention counseling and to
providing sufficient support services and to providing the solid edu-
cation and training that the students deserve when an institution
admits them. It seems to be it's almost a sacred obligation o. theirs
to deliver for those students. ,

I had an interesting experience very recently I spoke at the
graduation at a proprietary school, something I had never done
tefore. It's a schoSl, Suite frankly, that a year or so ^o he^^jj
the 1989 Budget Reconciliation Act lost eligibility for the SLb pro-

^m?t the school looked at its practices. It looked at the kind of
performance. It decided rather than giving up or going put of bi^i-
neaa to commit more of its resources to providing >he kinds of sup-
port the students needed, to making sure that its instructional pro-
^In« were effective. And it's dramatically increased ite retention
Stes. It's had excellent placement rates for those who finished,
and my expectation is that that school will again be eligible.

My feeling as well is that the kinds of recommendations that are
contained in the NCHELP proposals are recommendations that in-
stitutions committed to providing service to low income and disad-
vantaged students, but committed to providing quality training
JS^will meet. And that's what we have to try to make sure we

assure

Mr. Haybs. Dr. Longanecker. .
Mr. Longanecker. Yes, just to build on some of
have been said. I think what we need to do is expand opportunity.

O 43f)
ERIC

422

but the opportunity to succeed, not the opportunity to almost cer-
tamly fail, which is what happens today.

So by Mtuallv reducing access, that is, to those institutions
where students don t succeed, we may provide the right incentives
to increase access to the opportunity to succeed. And I think that's
the key to what we need to do.

Now, ^rmane to nay tratimony this morning, I believe the States
haven t been as focused on that as they should have been in the
licensure of some of the institutions in those Stetes. And that's
Sity ^^^^ haven't really perceived that as their responsi-

I think that attitude is changing, and we think there are a set of
rerommendations that would help change that more significantly,
and that if we set the right incentives in place.

I think it's also important to keep in mind that higher education,
in general, is moving into a new generation of looking at its busi-
ness and looking more at the outcomes rather than just at the
process and the inputs. And so I think, to some extent, this reau-
thorization needs to, and will, it would appear, stert to capture
that sense of looking at performance as well as just good inten-
tions.

Mr. Hayis. Congressman Coleman.

Mr. Coleman. Thank you, Mr. Chairman. Mr. McCormick, you
have a lot of recommendations, some of which I agree with, and
with some which I have problems. But one in which I am surprised,
IS a very candid and frank stetement which should have set off a
lot of ^arm bells here today, and had people on that panel, well,
some of them, at your neck. And I haven't seen it yet.

And that is, would you please explain about removing the accred-
itation process for certification in one of your recommendations,
number four.

Mr. McCormick. Thank you, Mr. Coleman. I frankly feel very
strongly that accreditation is exactly that; it's accreditation, ft
deals with curriculum. It deals with the requirements of a faculty.
It speaks to the quality of instruction. It speaks to the purpose, the
goals, the missions of an institution, and that is its viable purpose.
And that has, historically, in education been the purpose or accred-
itetion.

I don't think accreditation has any role to play in certifying what
schools receive Federal funds for what reasons. I think the purpose
of the program itself, the Department of Education, should be the
one to determine, based on the direction the Congress gives them,
the cntena that all schools, whether they be private, pi3)lic or pro-
prietary, must meet in order to qualify to achninister Federal stu-
dent aid on their campus.

And I think accreditation has a very viable role in the grand
scheme of things, but it does not have the responsibility or the role.
It s mappropnate, in my opinion, to ask it to be a part of the triad,
if you will.

I think the evidence of the last 5 years is very clear; the triad
has not worked.

Mr. Coleman. Would you have more faith in suggestions that
have been made here for Stote licensing and, perhaps, a more de-
pendent role with some standards developed and requirements

ERIC 4j ,

423

made by Federal law? Is that something that you think is stronger
and better than the current system?

Mr. McCoKMiCK. I would be much more supportive of that ap-
proach, combined with a very clear direction on the part of the
Congress to the Department of Education to exercise, in my view,
more authority that they currently have in the current law to cer-
tify schools eligible to participate in Title IV. ^ ^

I think all you have to do is go to the Inspector General s report
on the program certification process of the Department of Educa-
tion and look at the current deficiencies in the way the department
exercises that role. And you don't need any new legislation; you
just need someone in the department to assert themselves m re-

^^MTcoLMflAJ^^ Manning, what do you think? I know what
you think about this, but what he says has wme validity to it- Give
me your best shot in about a minute and a h^, or so.

Mr. Manning. Let me try a minute and a half. Mr. Coleman. Ac-
creditation was looked to by the Congress m 1952 bemuse of poor
experience with the GI bill of World ^arlL Fraud and «5»^Jf/!
rampant at that point and the private accreditation system was the
only mechanism available to the Congress to do something about
providing the kind of eligibility or screening for institutions.

It has served as a component of the eligibility tnad for some 40
years. And the success of that triad, while it s had problems m the
last 5 years, I think is evident. ^ *u ♦^^j

The accrediting bodies have never asked to be a part of the tnad.
They have been eager and willing to serve the public food hv
making the public designation of accreditation available to the fed-
eral Government for its use in the eligibility proc^. ,

If there were a viable alternative, I can suspect—we ve not con-
ducted a canvas so 1 don't know— I suspect that a great manv of
the accrediting organizations would say we afepnmarily a vo un-
tary nongovernmental activity and we will proceed along the Unes
that we have historically proceeded.

At the moment, we do not see a viable alternative. The otst^, i
think, are simply not going to do it. You have 52 P^J^ Ji^«dS
and to suppose that are alTsuddenly. after years and yea" of
nothing, they^re going to leap forward and come ahead. 1 thinK it s

^"l^SSnTaSrreditation is a useful and important competent and
should be retained. ^ , . ... ^

Mr CoLSMAN. If we were to spell out, say, ten factors that the
accreditation process had to cover, and some of them would be new
ground for you to cover, specifically dealmg with educational loans
and grants and so forth, financial aid— would you do it.' ,

Mr. Manning. My advice-and I should say Im retiring short-
Iv— my advice to the accrediting organizations would be no. i ao
not tSnk They are qualified to'^de^ with that. They are a peer
review process. The people who serve on theu- teams, who serve on
their commissions, who serve on their review processes, are not
qualified to deal with the details of Federal programs.

Mr. COLKMAN. Well, that's a pretty firm statement. Aiid let me
Bay-and I know you're leaving but I do want to have the record
show that I believe that since we are dependent upon the accredita-

431

424

tion agencies to the extent that we are, one of the real threshold

auctions IS why they haven't adapted more and pureued efforts to
eal more in this area.

And I'm beginning to think Mr. McCormick's suggestions, and
the oUiers here, have more relevance to this process than what the
Mcreditation agencies want to reveal or have said in the past I
think a key part— and it's so important, perhaps the most impor-
tant thmg we can do, is to certify a school or not. And if they're
certified for the wrong reasons, then that's where I think the prob-
lem has come about.

And this is one of the things 1 want to be sure we can do some-
thing about this year.

Now, the guys from the States. Why do you need any Federal
momes to do any of these things? Are you asking for Federal
money, Dr. Longanecker?

Mr. Longanecker. Yes.

Mr. Ck}Lra<AN. Why do you need our money for this?

' in part, you can see the advantage

that Federal funding provides through the VA approval process,
that Federal fundmg there has allowed that process to develop to a
robust enough level that it can provide the kind of oversight that's
necessary.

Many of us put substantial resources into this activity in the
States, but that varies substantially from State to State. What we
are proposing is a level of funding that wouldn't— well, depending
on whose proposal you take— that would help but not necessarily
supplMit what the States are doing today but would allow us to do
a much more rigorous effort in that regulation.

And we think that it's a justified request because we are, in fact,
proposing to do this as a partnership with the Federal programs,
tor the admmistration of the Federal pn^rams.

Mr. CoLEMi^. I^. Kipp, do you have a different opinion?

Mr. Kipp. Yes. Speaking on the basis of California's experience
and what we ve done m the last couple years, we didn't ask for any
Federal money when we passed new legislation abolishing the old
btate licensure agency as ineffectual and creating a new commis-
sion that was less controlled by the industry to enforce tougher fi-
nancial administrative and consumer protection requirements. It's
not going to be financed with Federal funds.

And, certainly, I think it's possible to have a dramatic strength-
ening of the State oversight and licensure pnx^ss as it relates to
student aid and, more importantly, to adequately protecting stu-

iv® as consumers without asking for Federal funds to finance it.

Mr. Coleman. Now, the administration has proposed that the
States play some sort of risk-sharing role. Thev recommend that
Stetra with 20 percent or above default rates for their borrowers
would share m the risks.

Are you familiar with that proposal?

Mr. Kipp. Yes.

Mr. Coleman. Then you have a direct stake in the process. Even
more so because you have monies to lose.

But my two-part quesUon: One, where would the funds come
from m your State, or where do you think they would come from in
most Stetes, to pay for these defaults that the Federal Government

ERIC

425

wants the States to become involved in? Would you answer that
firat? Where do you think the money is going to come fromf

Mr. KiPP. Coming from a State that's faced with a $14.3 bilUon
deficit in the current year, I don't think it's going to come from
any visible source. We don't happen to be a State that has a de-
fault rate over 20 percent, but I think that proposal, frankly, is
mi^uided and misdirected. , , ^, .

As long as States are limited in terms of dealmg with the issue
of institutional eligibUity to impose s no condition or 7%"»«njfnt
that's more stringent than that which the Secretory of Education
requires, the States are in no position to be able to tighten down
eligibiUty and control defaults in that manner.

We've had to go to different techniques and different approaches.
And I think the solution is in the licensure area and elsewhere; it
isn't in the Stete risk^haring.

Mr. Coleman. Dr. Lonmecker. cwirim

Mr. LoNGANECKKR. Ycs. Speaking now for myself as a SHfcMJ,
rather than for the organization, I beheve that in Colorado in
terms of public institutions that they are above that level we would
probably go to the— it would be a combination of publicly appropri-
ated doUars, probably a reduction in other student financial aid
programs and a combination of some expectation from the mstitu-

^**For those private institutions, we would probably try to recap-
ture those dollars from that industry.

Mr. Coleman. From the student?

Mr. LoNCANECKER. That's correct. * j

Mr. Coleman. A loan origination fee or guaranteed fee or some-
thing similar? . ,

Mr. LoNOANECKER. Something along those Imes.

Mr. Coleman. Students would pay for it? . .

Mr. Lonoaneckeb. I think that given the economic circum-
stances of States, that's the likely approach they would take

Mr. Coleman. So what incentive does this plan afford to keep
the default rate down if the costs are just passed on to the families
of the students? , , . j„

Mr. LoNGANBCKER. 1 think there are ways. You asked me to re-
spond to the adminstration's proposal. I think J^^re are wajrs to d^
velop true financial partnerships with the State. I thmk the Stat€«
would be more likely to accept that partnership if they also had
some discretion or authority in determining whether that financial
was likely or not to o«:ur. ^ ui- *■ « ^.

It's very difficult for a State, I think, to accept an obligation oyer
which it has no control whether that obligation is gomg to be in-
curred or not. And that's one of the dilemmas you have in the pro-
gram today or with, I think, the adminstration s proposal.

Mr. CoiiMAN. Finally, Mr. Chairman, is there a model code out
there for licensure and so forth? And is it any good, or is it witten
by the mdustries? We know that we're concerned about it. Wiat it
we were to create or work with someone on a model which had
teeth?

Is that something that's could solve the problemg .
Mr. LonganeckL. If I might address tW SHEEO is pr««ntl^
working on a study which wUl be completed this summer which is

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426

landed to provide a set of national standards. And, in fact, em-
bedded in Uie legislation we proposed are about nine areas for na-
tional standards that we think, if adopted, could substantially im-
prove the overall regulation.

We don't think there's a single model because there are various
cultures in this country. And so we think different States need to
develop different approaches to it. But we do think that there are a
set of standards, national standards, that would be legitimate to
apply to all States.

Mr. Coleman. Other comments there?
wJSf^T go»S««sman Coleman, if I might. I think a number of
the NCHjiiLP recommendations focus on that issue. And, again,
speaking personally I know that in the case of the California Stu-
dent Aid Commission we have submitted at the chairman and your
request as a part of our proposal for reauthorization specific Ian-
page m the three column format you suggested that deals precise-
ly with the details. It s a very detailed proposal on what we believe
would be model mmimum State licensure requirements that could
provide the kind of protection and integrity we're aU seeking.

Mr. MAWjmo. To respond directly to your question, Mr. Cole-
man, m 1973 the Education Commission of States developed a
model statute for authorizing postsecondary educational institu-
tions. There 8 been a model statute in existence for almost 20
years, but it has not been used much.

Mr. Coleman. Thank you, Mr. Chairman.

Chairman Ford. Mr. Manning, you mentioned the upheaval that
was rampant across the country because of the fly by night back
alley garage that suddenly overnight became an automobile repair
shop. I came out of law school in 1951 and was one of the veterans
who resented the fact that somebody was stealing this money that
we had discovered was the most important thing in the world be-
cause It was paying for our college.

There was anoUjer kind of fly by night idea that I remember.
And what everybody takes for granted today. It is air conditioning.
It didn t r^ly exist for the great unwashed public in this countnr
until after World War n. f j

When I was in Colorado what was originally called air condition-
ing uras really a block of ice in a box with a fan blowing over it.
And then somebody came up with a marvelous idea that you could
a <»mpr^r and run air through a radiation type device and
cool It instead of hauling the ice in and draining the water out.

Before this time it was called refrigeration, but hadn't been ap-
plied in that way. And suddenly everybody who knew anything
about It had an air conditioning school. I suspect that some people
who went to those air conditioning schools got jobs because nobody
knew a good air conditioning job from a bad air conditioning job.
Nobody ever had an air conditioning job before and nobody knew,
even after air conditioning was installed in our house, whether it
waa good or bad unless it wasn't as good as your bother-in-law's.

There was great anxiety from out in the higher education com-
munity that the GI bill was wrong; it shouldn^t have been paying
for IJhings hke that. And then we found out that some of our
inends had gone to Paris and were studying art on the West Bank,
and that sounded good. Then we found out that some of our friends

427

were taking Hying lessons in Piper Cubs with no real commercial
value involved, but it kept them Diwy. , , r

When I got here in 1964. 1 found out that this place was broihng
with anger. It remained from the period of the much publicized
abuses erf the GI biU, not only in the 80H»lled trade schools and fly
by nights, but the kinds of things that people were gouig to college
for. It irritated people that a veteran was studying preCtolumbian
art, for example, at the university with the GI bill.

But from that time on, I've seen over and oyer again people with
ideas about how we magically decide what is and what is not a
good school And I was very interested when I <»me back to hear
your response that you don't know how to define that either and
you wouldn't recommend that your voluntary agencies try to do it.

During the Carter adminstration when we did the reauthoriza-
tion in 1979 and 1980, the Carter Administration was mtent uoon
the fact that we had to have some kind of new government involve-
ment in accreditation. Mr. Coleman's predecessor and I set out co-
operatively to try to accommodate that concern and try to draw

**Sfa^atively short time, we had our head handed to us in re-
specUve baskets by the education community, who said, . Jou^can t
do this to us because we have always voluntarily submitted to ac-
creditation agencies, the membership in which is voluntary and the
benefits and penalties thereof are voluntary.' - , *

So you're going to replace government dictate for voluntary
action. Now, if you would compare the sensitivity of the Uater
people, who ducked and ran as soon as we tried to do it, with an
adminstration that talks about a thousand pomts of l«bt and vol-
unteer everything. The Family Medical Leave is a bad bill notbe-
cause the idea isn't good but because it mandates that somebody

does something. ^i. ^ u *i. r<a,^<^«-

Now, does anybody at that table suppose that when the Carter
adminstration ducked Rsd ran the last time we tried to about
the Department of Education, then the Department of HEW, writ-
ing regulations for accreditation, that this administration, the
cimmpions of volunteerism, are going to replace th^ volunteer ac-
creditation agencies with a government mandate? ,

Does anybody really believe that we would be doing anything
except wasting our time if we went in that direction? How would
any of you who suggest that we ought to be doing something sug-
gest we approach the problem without having a tremendous erup-
tion that causes everybody to run politically on it? . . .u-
Mr LoNGANECKEB. There's some danger m jumpmg mto this
one, but I will do so. I think this is an area where tnere may be a
good case for some redundancy. I'm not one to propose that the ac-
creditation process should be-that the triad should necessarily be

***wSt^"would suggest is that one of those partners be sutetai^
tially enhanced, not only in what it can do but what it should be
clearly expected to do. 'Today, what it says is, 'License this mstitu-
tion " That's what the partnership is. But was licensure means is
left entirely to the State to define. ^ „ , , „ ,

What we're suggesting is that the Federal Government and the
department make much more explicitly what their expectations of

:RJC "^^^

428

licensure are and that yes. indeed, there be some redundancy be-
tween

Chairman Ford. In the State of Colorado, what kind of schools
could you get away with having a State license for? Could you li-
cense the University of Denver, which I attended?

Mr. LoNGANECKER. We could. In fact, we regulate them today in
a very modest way. Actually, when I was in Minnesota, we had a
much more significant r^^lation of the private sector and a much
more significant private sector. And that was generally supported
by the private sector of higher education.

Chairman Ford. What kind of things do you relate?

Mr. LoNGANECKER. In Colorado we have very modest regulation
of the private alleges. In Minnesota, on the other had, we did
almost everything that is identified on page five of the propel
that's before you. We looked at financial and administrative capac-
ity. We looked at facilities, equipment and supplies. We looked at
the faculty qualifications. We looked at curriculum. We looked at
admissions and advertising criteria. We required that they partici-
pate fully in the State's data collection efforts and maintaining of
student records. It was a fairly substantial involvement vrith,
indeed, some overlap with the accrediting proc^. But we never
envisioned that that was a replacement for or an alternative to the
accrediting process which served, we though, a distinctly different
set of purposes.

Chairman Ford. Well, I have a law degree from there, my son
has a law d^ree from there, and my daughter-in-law has a law
degree from there. Where in your list of A through I would I find
anything if I was considering sending a grandson back to that
school that would tell me a damn thing about whether it produces
a good law education?

Mr. LoNGANECKER. In Colorado you would not.

Chairman Ford. Now, that's part of the ^. '>blem here. It seems
that we quickly accept the idea that the:^ are some kinds of
schools that you can measure the people coming out of and decide
whether the school is a good school on the product it turns out.

My own experience as a lawyer since I took the bar in 1951 is
that two-thirds, at the maximum, of the people who take the bar
ejwmination in my State for the first time pass it. If the beauty
schcwls in Michigan only pa^ed two-thirds of the people who take
the State beautician's license examination each year, we would be
condemning the devil out of them as not giving people their
money s worth.

But everybody accepts the fact that fully one-third of the success-
ful graduates ranging from Harvard to Michigan to Stanford and
you name it dont make it the first time around in Michigan.
That s not atypical; that's fairly typical across the country. They
accept that as evidence of the fact that we've got fine, rigid regula-
tions that keep the unfit out of the practice of law.

But they never question the fact that a law school turns out a
definite number of licensed attorneys. I might say that the school I
went to was superior to the University of Michigan law school—
which I couldn't get into when I was ready to go to school— because
I had two friends who took the bar with me, both of whom had

429

gradra far superior to my grade point aver^ in law school, and
failed the first time and I passed tne first time.

Now, it bothers me when we try to overeimplify these things and
say that there's any yardstick by which you can decide when an
educational institution is educating somebody. Now, clearly, train-
ing a one-l^seed person to be a truck driver is outrageous or trying
to train an illiterate person to be a computer operator is outra-
geoiis. Those are the anecdotal kinds of things that get us all excit-
ed.

But what would you do about the fact that recent averages show
that it takes 6 years to get a 4 year degree in this country for most
people who go to 4 year collies? Whose fault is that? And who is
getting their money s worth and who is not?

We're clree to the point where a majority of people do not finish
a 4 year d^ree in 4 years. That's close to the reality of the whole
system. .

But when we look down at certain types of schools it seems
easier to select out, like Mr, Sw^ney was doing. I'd like to observe
to you, Mr. Sweeney, that 1 had a great deal of respect for all the
tightening that the Veterans Administration did on these fly by
nights until I experienced, again during the Carter Adminstration,
something called weekend coll^ for automobile workers who were
veterans of the Vietnam war. They would go to school on Saturday
and Sunday, continue working in a factory all during the week and
work toward a d^free on weekends. . . , . ,

Lo and behold, the Veterans Administration with its rigid little
yardstick looked at the number of hours that they sat in a seat and
said this doesn't qualify as college training and disqualified all
these Vietnam veterans at Wayne University in Detroit, some
12,000 at one time, a pn^am that every educator thought was a
great success.

And we never were able to get enough muscle on the VA to
change those rules to permit the continuance of the weekend col-
lege, not only there but in other parts of the country. And the
r^ult was that the pig-headed bureaucratic approach that they
take over there in defining with absolute certainty what is and
what is not adequate educational time stood in the way of any kind
of innovation.

I tell you all of this because I am getting more and more frus-
trated with everybody coming in here and saying you've got to try
something new. I've been trying something new for years here;
eighteen things we have done since the last reauthorization to
tighten up on fraud and abuse and mismanagement in student
loans alone. And the department was here yesterday.

Mr. McCormick, it's always refreshing to have you because you
and I agree so often. You point out here that the data bank that we
authorized way back in 1985 isn't on line. Yesterday, the GAO told
us that they finally have decided over there that they need a data
bank because they can't answer our questions, they can't answer
your questions, they can't answer any questions about what's going
on in these pn^rams.

We authorized it in the last reauthorization 5 years ago. iney
started working on it last year, and the GAO has been assured by
the department that by late 1993 it will be up and running, which

437

430

means that sometime in 1994 we'll be able to ask questions and get
answers.

I sent to the department this morning those 18 chaises that we
made and asked them what was done about them, if anything,
what is being done now, and what they intended to do in the
future. And I know ali^dy what some of the answers are, and the
answer is nothing.

And I now have the feeling that we've been sitting here like a
l^^lature passing drunk driving laws onlv to be told that the cops
don't like to arrest anybody for driving while they're drinking. All
kinds of changes in law, and yet they are up here, like everybody
else who's here, "Make some more changes in the law."

Mr. McCormick points out in his statement very clearly without,
attacking the department that that's really where our problem is.

We'll be back in just a minute.

Mrs* LowEY. [pr^iding] Gentlemen, I'd like to b^in with Mr*
David Longanecker. I was particularly interested in your proposal
with r^ard to improving State licensure and State oversight of
educational institution participation in the student aid prc^rams.
In fact, you made severed important points.

First, that it's important that rraponsibilitv be close to the prob-
lem* Number two, you wanted to be sure tnat you see mcnor re-
sponsibility for oversight in the hands of the govemroental body
tnat is resfionsible to the public. Number three, this basic scheme
has been tried succ^fully with the VA educational prc^ams.

However, if I recall, Mr. Manning made a statement that the
State governments are not exactly going to leap into assuming re-
sponsibilities for these prc^rams. So that I wish you would make
clearer for us why this particular plan will provide the strong lead-
ership, why it will provide strong oversight, and why it will have
an impact on aiding us and getting rid of all the fraud in this pro-
gram.

Essentially, Yd like to know why you think this plan will suc-
ceed.

Mr. Longanecker, Thank you for the question* I think Mr. Man-
ning has raised a very legitimate concern, but I think there's a
good response to it as well. Why would we trust the States given
their one partner — ^and I've indicated in my testimony that the
States haven't done their job to this point, so why would I suggest
you trust them.

Mrs. LowEY. Some States,

Mr. Longanecker. Yes, Trust us. Vm from a State: Trust us and
we'll work with you kind of thing. I think there are a variety of
reasons, some of which you mentioned. But there are a couple of
others that I think are key to this. You've mentioned that the
States are governmental agency and they are cl(^r to the source
of the provision of educational services. I think that gives us a dis-
tinct advantage over the Federal Government as the principal imrt-
ner.

One of the dilemmas we have with the triad today is it's very
easy for us to point fingers at all three of the actors. And so we say
the problem was accreditation or lack administration at the De-
partment of Education. The Etepartment of Education say it*s those

431

damn States and the acxrediting people. The accrediting people say
the States should have been better about their licensing, if only the
Federal Government is really interrated.

What we're sort of sugg^ting is maintaining this partnership
but having a captain of the t^m, if you will, with Uie States
having much more clear requirements and expectations. That s the
other reason I think it would work.

What we're suggesting is that the Federal Government through
l^islation make it more clear what they expect of us, what stand-
a:^ they expect us to uphold. And we've listed nine that we think
are important ones. Not tell us exactly what we have to do. We
don't think that would be helpful. But to give us standards which
we would have to develop State guidelines then to r^pond to. And
we think that would be one help.

The other one, and I think it is important, is that we have pro-
posed that there be some financial assistance from the Federal
Government to do this. We think we would benefit from this, cer-
tainly, he<»use we would have a stronger standards and a better
set of institutions operating within our States.

But we also think there's substantial benefit to the Federal Gov-
ernment and so there should be a partnership in the financing of
that. And we also would be candid in saying that the finances
would provide a stronger incentive for all of us to partnership on
this, rather than some of us.

I think the other is that there is a new enlightenment, if you
will, in the States. Many of the States— California, New York, Colo-
rado, Tennessee, and a number of others— are oecoming much
more serious in accepting this r^pons'bility and to looking forward

So there's some momentum upon which we think the Federal
Government could build. Is that responsive?

Mrs. LowEY. Yes. And I wonder if you can elaborate further. You
talked about flexibility for the States to let them develop their own
plans. I wonder if you can elidtorate on what should be the Federal
responsibilities. And how would you see States differing? What
would be the basic elements? , ,

Mr. LONGANECKEB. Well, we think it's important for the Federal
Government to set the standards, the general areas in which we
would need to set regulations, and to have then some oversight to
see if we were serious about it in bringing what we brought back.

So we propose that the Secretary would have the authonty to ap-
prove or disapprove the plans that we brought forth. But we think
it is important for the States to develop their own criteria. The
State of Colorado, a basically rural State with three and a half mil-
lion people is a very different State than California or New York.
And what is going to work for us in a much smaller environment is
not going to necessarily be the ideal plan for a State with 30 mil-
lion people or however many there are in New York,

So I think it's very important to allow States which have the re-
sponsibility, the primary responsibility constitutionally, for over-
sight of educational services, the delivery of that, to fashion some-
thing that fits for them but also fits within a national framework.

Mrs. LoviTKY. I wonder if you or any of the panel members would
care to elaborate on Che specific fimctions of the States. What role

4Xi

432

do you see the States performing given the fact that there will be
some differences between States? Perhaps you would like to com-
ment further. What specific functions, wlmt is the role you see
them performing? And I'm sure there are o^rtainly differences, and
we should rropect that, between the large States and the small
States.

Mr. LoNGAKECKER. I think in some Stat^, for example, in Colo-
rado, the ftmction would probably be provided almost exclusively
by one agency or a set of activitira under the jurisdiction of one
bn»der agency. In our State, that's the Department of Higher Edu-
cation. And currently, virtually all of pratsecondary education is
regulated and monitored and encouri^ed to improve under the
ruBric of that organization.

In another State there might be more agencies or more entities
involved, but we think still there needs to be one entity that is des-
ignated by the Federal Government and held accountable for deliv-
ering on ttiis if the State is unwilling to do that in the entire array
of postsecondary education. Then the Secretary and the Federal
Government ot^ht to have the prerogative to ^tablish a nonstate
a^ncy or some other entity to work in that.

But I think it could be done. I think it involves looking at the
busine^ operations of those institutions* I think it also involves
looking at the educational operations and outcomes of that oper-
ation to assure that they're viable on both counts,

Mrs, LowsY* Dr. Kipp.

Mr. Kipp. One point in terms of flexibility, in terms of the struc-
ture. Both in the NCHELP recommendations and in my own per-
sonal experience, what we're really talking about is a role for the
Secretary or the Congress in terms of mandating minimum State
standards for licensure, not maximum standards.

Quite frankly, a nimiber of the standards for financial capability
for administrative ^i^ibilitv and in terms of performance that are
now what the Secretary calls for, C^ifomia no longer feels confi-
dent will provide adequate protection to the students «md to the
taxpavers of the State.

And so our standards for being able to operate a school in Cali-
fornia, independent of any issues of financial aid, are more de-
manding. In that connection as well, I think whether we're talking
about overseeing, in addition to putting thc^ standards in place,
whether the States actuallv enforce them, one of the problems that
we have, as Joe McCormick pointed out, is that we do have, in fact,
in place a nimiber of standards that in terms of the Federal certifi-
cation process by the department are simply being ignored or not
being rigorously enforced.

The one to one araet to liability ratio that exists right— now
we've been looking at some of the schools that have recently re-
ceived certification by the Federal Government and reviewing
those statements, which are unaudited statements. And even a be*
ginnin|; accounting student would not be williiu; to accoimt some of
the thmgs that are listed as assets there. And a closer inspection
suggests quite clearly that the school doesn't even meet minimum
Federal standards.

I think we need to have minimum Federal standards. I think we
need to have flexibilities for States to go further in terms of pro-

er|c i\J

433

tecting their own citizens. The areas that NCHELP and many of
the Stat^ are focusing on are truth in advertiedng and diwlmure
areas, performance standards, financial cai^bility, administrative
performance.

In our own case, we are not looking at areas such as curricula,
pedagogical techniqui^ the qualifications of faculty and so forth.
We're looking at the acttml performance of the institution in deliv-
ering the education and measuring it in terms of outcomes and
trying to make sure that there's a reasonable assurance that what
they promise is, in fact, what thev can deliver.

Mrs. LowEY. Thank you. Mr. McCormick.

Mr. McCoEMiCK. I really would not have a lot that I would add
to what Dr. Kipp has already said other than to say that you find
in several States, Texas being one of Uiem, there are standards of
performance. There are standards of adminstration, if you will, for
the traditional sector in h^her education that are enforced and are
related by a State agency that, in fact, you do not find in the for-
profit sector. And the agency that licenses those institutions does
not put them under the same t^te.

And I guess it may be at the risk of an oversimplification that I,
as a consumer, would simply like to know that if I decide to enroll
in plumbing, that that plumbing course is credible whether I
decide to do it at a traditional institution, a junior collie or a for-
profit institution. That in some minimum way, all of those institu-
tions have had to meet a minimum standard.

And you simply do not find that pr^nt in several of the States.
And I think the proposal that Dr. Longanecker is putting forth
speaka to that, and that I would support that.

Mrs* LowEY. Would either Mr. Sweeney or Dr. Manning care to
comment?

Mr. Manning. I just wanted to emphasize again, Mrs. Lowey,
that I think these remarks point out that a cooperative arrange-
ment among the States, the Federal Government and the private
accrediting organizations work well. The accrediting organizations
do look at curriculum and faculty and, as you have neard, some of
the States do not in tiieir arrangement.

This, I think, the triad, is a well established activity that needs
improvement, not replacement. And many of the sxiggestions that
have been made today and elsewhere would indeed speak to the
improvement of three wmponents.

Mrs. LowKY. Now, before vou stated that you don*t think the
States would leap forward. I guess the qu^tion is here is how
much should we push them forwani, encoura^ them to move for-
ward, encourage their participation more actively in order to pre-
serve the integrity of the pn^x^m?

Mr. Manning. I think you should. And in my written testimony,
I suggest that the Federal Government does have a role in encour-
aging the StatM to improve their authorization statute and their
authorization and the administration of those authorization stat-
utes.

Various kinds of incentives could be devised, including the lower-
ing of interest rates to students, which would benefit the students,
provide and incentive for the States to change their practice to
benefit their own citizens. Similarly, incentives could be provided

ERIC

434

to encourage the inistitutiom to pre^re the States to improve
thir^ as well as, possibly, direct subsidira to the States.

Tm a little skeptical about direct subsidi^ to the States because
if you look at the histor}' of the VA pn^ram, suairrasfiil as it may
be, it costs roughly $14 to $15 million a year at the pr^nt time
and has been going on for some 45 years with no possibility of its
departmg in the future,

Mrs. LowEY, Actuall)% that's a direct, to Mr. Sweeney because
certainly your testimony commented on the effectiveness of the VA
pn^ram and the impact of Federal funds working within the VA
pn^ram.

Would you care comment?

Mr, Sweeney. I certainly telieve that $12 million, although a
large amount of money, when you're talking about over $2 billion a
year in just the one area of student financial a^istance pn^rams,
the Staifonl loan program, to increase the effectiveness of the
entire field of student financial assistance programs with a dollar
amount that might double or triple the amount that Tve just men-
tioned, is certainly im effective way of approaching government.

One other comment that I would make is that with respect to the
single coordinating entity within a State, I think it*s extremely im-
portant that this occur because of the fr^mentation of current li-
censing bodies. You have varying levels of expertise within States.

I come from a very small State and we have a half a dozen li-
censing bodies. And those licensing personnel, I think it would take
a great deal of training to bring the people up to a level of exper-
tise that we're talking about where people could adequately ad-
dress such things as appropriate admissions standards, appropriate
prc^rew standards, financial stability of an institution, quality of
the education and so forth. I would add that point

Mrs. LowEY. Thank you. And before I turn the questioning over,
I just want to say to the panel that in order to preserve the int^i-
ty of this program, I am interested in pursuing State licensure. I
know that Mr. Goodling is also working on this issue and I hope to
work closely with him. And I thank you very much for your input.

Mr, Henry.

Mr. Henry. I have no questions.
Mrs. LowEY. Mr. Andrews.

Mr. Andrews. Thank you , Madame Chairwoman. I appreciate
the testimony of everyone this morning. Mr. McCormick, i wanted
to see if we could expand a bit on some of the things that youVe
said very well

I understand the sort of implicit assumption behind your testimo-
ny is that if these continuing problems of the program integrity

Eersist, weVe going to undercut the public consensus that's been
uilt up over the last 25 or 30 years for these kinds of prc^ams. I
think you make that connection very well.

On page two of your statement you say that the vast mcyority of
changes to the student aid programs in the last 10 years have been
primarily driven by budget cutting factors designed to achieve
'savings in Federal expenditures** in order to meet mandated
budget targets.

Could you give us some of the specific manifestations of budget
driven decisions that have undercut pr<^am integrity?

ERLC

41.'

435

Mr. McCoRMiCK. Yes, sir. I think the most classic example in
recent years was the 1985 Budget Reconciliation Act, which spelled
out that guarantee agencies vniuld return to the Treasmry through
a spin-down procece rame $2^ million. And that was tesed on a
study that the GAO did at timt time that said guarantee agencies,
by and large, had adequate reserves at a level of 1 percent of loans
outstanding.

You heard testimony yesterday from the GAO. the same GAO
that recommended $250 million be returned to the Treasury, that
guarantee agencies needed to maintain certain minimum reserve
levels in order to maintain credibility and soundness in the guaran-
teed student loan pn^ram.

That is just one example of in the heat of the moment in the
effort to reach the budget targets that you were trying to reach in
a given year a solution was embraced that did not necefflarily serve
the student aid pn^am weU.

There are other examples of where that has occurred, and the
actiud rrault has not been to improve the program, has not been to
enhance our ability to rollect loai». It has made it more diificult
for not only guarantee agencira but lenders, secondary markets
and others to maintain the healUuness of the prt^jram.

Mr. Andbf vt. Sounds like what you're saying is that program
int^rity hf ueen sacrificed on the altar of cash flow for the Fed-
eral Government. Bring in the dollars.

Mr. McCOrmick. What I'm trying to suggest, and I know that
this committee can not do that in reauthorization, but I hope that
you can share this information with your colleagues on the Budget
Committee to say as we strive to meet our responsibilities to curb
the deficit and deal with the Federal budget, we take a little more
care as to the methodoliwy we're going to employ to do that.

Mr. Andhews. Now, there's another couple statements which I
think fit tf^ther. On page two you say, "It is not an insurmount-
able problem," referring to the default problem. "It is not an insur-
mountable problem, nor is it an indication that the guaranteed stu-
dent loan pn^am is seriously flawed."

And then on page three you say, "In focusing our attention on
the abuses of trade schools, little attention was imid to the lenders,
secondary markets and, yes, SaUy Mae, which provided money and
looked the other way while default rates soared."

When I read those two statements together, I'm reminded of yes-
terday's testimony from the Department of Education where we
were confronted with facts that said that defaults have risen from
10 peit»nt of program outlays to 44 pe«»nt of pw^ram outlays
over ^ut a 10 year period.

The number of individuals assigned to work on this problem
within the department has gone from 800 to about 1,100 over the
10 year period and they're requesting, apparently, 150 more.
Pn^rams that do truck driving by mail— and thank God they don t
do brain surgery by mail, I said to someone ^terday— pn^rams
that do that sort of thing have been increasmg in their funding.

What that sounds to me like is that the people who are looking
the other way are those responsible for regulatmg this. And our
focus ought not to be so much on flaws on the statutory structure

o 413

ERIC

436

as it ought to be on negligent or inadequate regulation and enforce-
ment

Would you agree with that statement?

Mr. McCoRMiCK. Yes, sir, I would. If you would examine the ac-
tivities of the Derartment of £klucation in the 198(^, imrticularly
after the Bud«^t Reconciliation of 1981, you will see that in the last
full year, 1980, over 2,(HN) prc^ram reviews of schools and lenders
were conducted by the Department of Education in 1980- In 1989,
only 3(X) prc^ram reviews were conducted. In 1986, it was mandat-
ed in the law that guarantee agencies do the primary program
compliance review effort.

And I think what vou saw over the whole period of the 1980s was
a Department of Eau(^tion that pulled back, that did not scruti-
nize, did not oversee the pn^am with the same intensity that they
were in 1989. And you saw a proliferation of loan volume, of
number of new schools being certified in the period of 1986 to 1989.

And it really was not until the latter part of 1989 when Congress
enacted some Functions in the budget reconciliation of 1989 and
then again in December of 1^0, it wasn't until then that we start-
ed getting a little different signal from the Department of Ekluca-
tion that maybe all of us should be a little more responsible in
what we're doing.

Mr. Andrews. What kinds of signals do you think they ought to
be sending? What kinds of thin^ should the department be doing
to be more r^ponsive to the l^islation that*s already in place that
would help us attack these inte^prity problems.

Mr. Mccormick. I think Chairman Ford hit the nail on the head
when he said they ought to be doing exactly what the United
States Congress has toldf them to do for the last 12 years. They had
the legal authoritv, they had the power within the Secretary's
office to have avoiaed these problems from the very b^inning.

Mr. Axi>R£WS, One of the aspects of your testimony on page
seven that I think is instructive is that you're, in effect, proposing
a solution as well as defining the problem. We hear from the de-
partment that it's subjected to diminishing resource, although Vm
not sure the facts always bear that out, that they're subjected to
diminishing resources and they have too few hands to do much
more work.

You suggest that we look at enacting legislation to require the
department to develop x^gulations that reward good pertormance
in carrying out the purpose of the pn«rams. Exemplary schools,
lenders, guarantors and services coiud be relieved from the more
burdensome, redundant and unnecewary rules.

I take it that what you^re really su^esting is a system of incen-
tive based n^ulations, where those who are lending and engaging
in guarantor work and operating schools, who are within the pa-
rameters of the niles are given more flexibility and freedom, and
then we target and focus our regulatory resources on those who are
abusing the rules.

How would that work?

Mr. McCoRMiCK. It's very simple. Historically, the I^partment of
Education has taken a blanket approach to the regulatory process
and said irrespective of the abuse, irrespective of the problem we're
trying to address, all institutions, regardless of how long or how

437

short a time frame they've been in the programs, must abide by
those regulations.

And as a result, I have had public junior colleges in Texas that
h^rically have been in the student aid pn^rams for many years
drop out of the guaranteed student loan pn^am bv simply saying,
"Plough is enough. I can not deal with the relations that I'm
now required to do."

I think that we are professionals; I think there are professionals
within the department. And you can recognize exemplary perform-
ance when you see it. And you can reward it by saying, 'I m not
going to put you under the same yard stick that I necessarily will
put another school or another lender or another guarantee ^ncy
that is not performing at the same level that your are."

N^tiated rulemaking is an example of this. And it works in
other areas of the Federal Government, and it can work in this
area. You actually have a pilot project being conducted right now
by the I^partment of Education on quality a^urance that involves
some 100 to 2(K) collies. In exchange for their agreeing to do some
things differently, they don't have to come under the whole litany
of rules and r^ulations that all the other schools do.

1 think that ought to be encouraged and ought to be eximnded

Mr. Andrews. In effect, what you're saying is we multiply the
existing incentives, both market and r^latory, for the good guys
and multiply the market and regulatory disincentives for the bad
guys. And I would assume focus— mayl» the dejmrtment wouldn t
need 1,100 bureaucrats if they spend more time on some of the

The other point that I just want to close on. I was struck by your
way of talking about the opportunity cost of this careless regula-
tion that we've had. And let me use that phrase. You know, if the
default rates were where they were at the beginning of the decade
of the 1980s, around 10 percent, it seems to me we would be getting
about another $2 billion a year in interest subsidy, which could le-
verage up to $20 billion a year or so of loans for students.

And how many more people could we educate with an additional
$20 billion worth of money in the pool, which would address your
concern about the plight of the middle class.

I guess one of our problems is we don't know answers to ques-
tions like that, or at least we didn't hear them yesterday from the
department b^use, as you point out on page nme, there is a need
for us to direct the Department of Education to come into compli-
ance with existing Federal law by bringing the national student
loan database into full operation as soon as possible.

The question I want to ask you, and again, I go back to your
point about Chairman Foni's point, we ought to go to the rudimen-
tary point the dejwrtment ought to follow the instructions wntten
mto the statute. If th<»e instructions were followed and if we were
able to achieve that, what other kinds of things might we know
and what would the tenefits of that be in crafting a more intelli-
gent policy?

Mr. McCoRMiCK. I think if we had in 1981— or, in the 19808, if we
had gotten serious about the student loan data )xaik and we really
had the ability to exchange information among States, we could

438

have avoided what many of us in the industry term technical de^
faults. Young people that literally would not have defaulted on
their loans had the system had the ability to keep track of them
and respond to their mobility in the process.

We literally have cases in which students were in school, were
fully qualified for in^hool interest benefits and deferments and
didn't get it because the system through the guarantee agencies,
Department of Education or whatever, lc»t them.

And we have got— I don't know what the number is, Td rather
not say. But there's no question that there is a problem in our in-
ability to communicate in this program that I think is inexcusable.
We've waited long enough, and there are ways that the department
can implement this recommendation. And I think you could avoid
a very serious problem that we call technical defaults where stu-
dents really should have gotten a deferment instead of gotten an
IRS offset.

Mr. Andrews. Finally, I note you have 25 years of experience in
this field and have dealt with all different levels of institutions and
decision making. Why do you think the department hasn't a)me
into compliance with creating the data base? What^s your analysis
of why that hasn't happened?

Mr. McCoRMiCK. I think, in ail honraty and candor, and this will
get me in trouble again, too.

Mr. Andrews. We won't tell anybody.

Mr. McCORMiCK. Over the past several years there's been an
entire industry, as I mentioned in my testimony, growing up
around the student aid programs. And there are those who fear a
national loan data Imse. There are those who fear it simply because
they feel the department is too incompetent to administer it and
all they would do is mess it up.

And there is some historic^ evidence to indicate that might be
the end result given the department's track record. But I think the
bottom line that we ought to face up to as States, as institutlonSt as
lenders* as the national secondary market, is that technolc^ has
finally brought us to the point that even someone as incompetent
as the Department of Education probably could adequately admin-
ister a data base. And technolc^ is so far ahead of this industry in
terms of how you administer th^ programs.

It is time for all of us to quit making excuses and get on with it*

Mr. Andrews. I appreciate that. I just wish you'd be a little more
forthright about how you feel about the department.

[Laughter]

Mr. Andrews. Thank you very much.

Mrs, LowEY. Mr. McCormick, I appreciate your testimony and
also the questions from my colleagues* I would just like to pursue it
just to clarify it. I believe you were quite forthright, but I just want
to be sure we have it clear for the record.

As we all know, in the period of the 1980s, during the deregula-
tion of the S&Ls, and there seems to be some comparison here — at
the same time as we were deregulating the S&ls there was a very
clear directive to decrease the administrative oversight of the
S&Ls. And we know that in places like Texas the administration of
this program was decreased more than 60 percent.

ERJC 4Ji,

439

I just want to clarify, is it total incompetents? Was there a direc-
tive? Was there a specific policy not to administer these pn^rams?
Or is it just total incompetence?

Mr. McCoBMiCK. No. I tiiink that the thing that was brought to
bear from the research that I have done on the Federal Govern-
ment's behavior over that 10 year period was venr much part of
Uie philosophy that that Administration had as to how to adminis-
ter prMrams m the various departments.

Mrs, LowEY. Just don't do it.

Mr. McCosMiCK. And they had a mission, they had a mandate
from their President and their Director of Office of Management
and Budget that they would conduct business in certain wajns and
they would reduce the employees of the Deiartment of Edu«»tion.

You have to remember that President Reagan ran on a campign
in 1980 that he would abolish the Department of Education. And I
don't think in 1981 he changed his mind very much about his
desire to deal with that department. And I think they dealt with
the Department of ^ucation based on their philosophical ap-
proach to what that department should do. And we're now paying
the price for that.

Mrs. LowEY. Could you also clarily for us the numbers of staff of
the Department of Education during the period of 1980 through
19^, As I understood from my colleague, I believe there was an in-
crease from 800 to 1100; is that correct?

Mr. McCoRMiCK, There was an increase in the staff of the Collec-
tions area. In total, there was a decrease of approximately 20 per-
cent in the Department of Education staff from 1980 to 1988.

Mrs. LowKY. But an increase in the Collection area from 800 to
1100, yet the default rate kept growing so that those staff that
were added just seem^ to be equally incompetent and didn t do
the job any more effectively.

Mr. McCoRMiCK. If the only thing we're going to focus on is the
student after he's defaulted, we're going to lose the game. We have
got to get to the front door of this pnx»^, and that's where they
were cutting back in the staffing and cutting back in their over-
sight responsibilities.

If all we're going to do is just add collectors in terms of trying to
resolve thrae problems, we're going to be spinning our wheels and
we're foing to lose the game. And I think that was a strategic error
on their part

Mrs. lowEY. Given the incompetence of the way the pK^ram
was administered, just to reinforce your earlier recommendation,
you feel we have a better chance at success with a State licensure
procedure.

Mr. McCoRMiCK. Absolutely. I think the department ought to
recognize it's limitations, if you will, and recognize the availability
of the States to assist them and be fuU partners. There are some
extremely competent agencies and people in the several States that
could very well save the Department of Education a lot of time and
money, "the Veterans' Administration has demonstrated a method-
olcey, a way of doing that. , ,r . > *j

You might not agree with all that parameters the Veterans Ad-
ministration has placed on the way they administer that program,
but you very well have a model that you can look at where a Fed-

.417

440

eral agency has used the several States in a very meaningful way
to administer a Federal program.

Mrs. LowEY. Well, I thank you very much and I certainly look
forward to working with you as we develop State licensure l^isla-
tion, and I thank you very much.

Mr* McCk>RMicK. Thank you.

Mr. Coleman. Let me, Mr. McCormick, make sure I understand
your recommendation and your t^imony r^arding removing ac-
creditation from the procras— we talked about this earlier.

Mr. McCoRMiCR. sir.

Mr. CoueMAN. You're not suggesting that the department, itself,
maintain a staff administrative apparatus to do the things that you
think the States ought to be doing and licensing.

Mr* McCoRMiCK. That's correct, I am saying that for the pur-
poses of licensing schools— that has been a time-honored, tradition-
ally State role and that's exactly where it should remain,

Mr, Coleman. To be made eligible for certification for Title IV
pn^xtuns?

Mr, McCoRMiCK, For certifu^tion for Title IV pn^prams, I think
the Federal Government, through its Department of Education has,
under existing law, all the criteria that it needs to provide that cer-
tification with the Improvement in having minimum Federal stand-
ards that States would adhere to in terms of licensing schools to
operate.

Mr, Coleman, The States would actually continue to do the li-
censing based upon Federal guidelines and criteria which, as I
think I asked earlier, could be written into the statute.

Mr. McCoRMiCK. Yes. But the question of whether or not you
allow me as a school to participate in Title IV student aid should
be squarely answered by the Department of Education in its certifi-
cation proce».

Mr. Coleman. So, if a school were to be licensed under your pro-
posal, it does not autonoatically then, tri^er a certification by the
I)epartment of Education.

Mr. McCoRMiCK. No, it does not,

Mr, CoLEBiAN. What Vm trying to get at is that there is more to

it.

Mr. McCoRMiCK. Exactly.

Mr. Coleman, It's not a ministerial act, it is a very important
and substantive act that that department wants to make and
should make, under your proposal.

Mr. McCosMiCK. Yes, sir* And they should be held accoimtable
for thrae certifications.

Mr, Coleman. So, on the one hand, we're going to try to beef up
the auditing and the collections and also the threshold certification
aspect of this program; that^s your suggestion.

Mr. McCoRBiicx. Yes, sir,

Mr. CoLEBCAN. All right. Let me also ask you, in Texas I know
you've gone through some lending— there was some suggestion that
prhaps all schools weren^t being serviced and the lending wasn^t
being made to <^riain students to attend proprietary schools, or
what have you. And I wonder, do you believe that the current law
allows the department to prohibit certain lenders from lending if

4 J ;>

441

they have, what we would call a default rate, like we do with insti-
tutions, of a certain percent?

Mr, McCORMiCK. I think under the current law, and I thmk it is
important tiiat everyone understands this, private lenders are in
the prc^fram under a volunteer basis. They are not mjuired to
make loons to any student attending any type of institution. And I
think vro have to keep in mind that, given that premise, they have
delivered $11 billion a year in capital to this prt^ram, willingly,
and in a volunteer sense, on ^e basis of their ability to earn a re-
spectable 3rield and on the basis of minimizing their risk, and that
is very crucial.

I don't think, under the law, that they are required to make
loans to any particular type of school per se. They have the ability
as originatmg lenders to set certain criteria, and the lenders in
Texas have done that, and said, "Under certain conditions, we'll
make loans, and under certain other conditions, we're not willing
to make loans."

Prob^ly, years ago, when we first got into the Guaranteed btu-
dent Loan business, the criteria that was m<»t often talked about
was a bank only served its customers. And then it expanded to a

^^^^SoLEMAN. But my qu^tion is: A default rate of a lending in-
stitution, is that a significant factor that we ought to take into con-
sideration? We have taken it into consideration for institutions,
we've made them inel^ble. Should (»rtain banks be made ineligi-
ble to lend more money if it is likely to end up as part of the $2
billion we're all concerned about, that is, if they continue to make
bad loans and end up having the tfutpayers pick it up?

My question was: Does the current law allow that? Should it, if it
doesn't?

Mr. McCoRMiCK. I'm not a lawyer and I'm not an expert on the
actual nuances of the rules and regulations, but I would assume—
and please don't hold me to this answer— that if the dei»rtment
can pass a regulation that puts schools under certain levels of de-
fault rates, it could also pass a similar recommendation that ap-
plied to originating lenders.

Mr. CoLKMAN. Should we require that? That s a valuable ques-
tion.

Mr. McCoRMiCK. No.

Mr. Coleman. You don't think so?

Mr. McCoRMiCK. I don't think that you should require that. I
think the marketplace, itself, takes care of that for you.

Lenders cannot stay in the program. They cannot maintoin the
yield on the use of their money if they continue to have higher and
higher default rates. So the marketplace provides a very adequate
control in that respect I think. , , , .

Mr. Coleman. But they are guaranteed loans, so the lender ends

"^Mr, McCoKMiCK. I'm glad you raised that point. One of the
points that was not made yesterday that should have been made is
it's a conditionally guaranteed loan. It is not an al»olute guaran-
teed loan. It is guaranteed under the condition that you made the
loan to an eligible borrower attending an eligible school, enrolled
in an eligible prc«ram.

ERJC

442

And though the entire life of that loan, prior to submitting a
claim to a guarantee agency, ;^ou would do certain things as a
lender We have, for example, m our pn^pram a rejection rate on
claims submitted by lenders of 3& percent on the awrage. Now that
means 35 percent of the loans that lendera submitt^ to me, he
gets back as noninsured loans that he has to ''cure'' or reratablish
their insurability so he can submit a claim. So he is taking some
risk by participating in the prc^ram.

Mr. Q>LEBfAN. Mo&t of th(^ are based upon the due diligence re-
quirements?

Mr. McCoRMiCK. Exactly. Yes, sir.

Mr. Coleman. Which really don't get to the heart of what we're
talkii^ about in the sense that Bank A lencte to students who
attend Institution Z, and Z's got a default rate, or questionable
quality of education. But they continue to do it because as long as
tney follow these due diligence procedures, they're going to be all
right.

Knowing of your background and your testimony, we believe that
you would think that there ought to be some area here that we
might be able to tighten down a little bit. But probing and not get-
ting much, I'll leave this witness alone.

Mr. McCoRMiCK. It was not a part of my testimony, but I think
the re asking for 12 weeks without pay. It will not cost the employ-
er an^rthing to let you take off. The only thing is, they do not give
your job away while you are gone.

We are so far behind the rest of the coin Texas and I'm sure they
do in California, if you really scrutinize th^ claims as they come
to you and you actually reject some, you get a much more responsi-
ble lender in your program.

So I think there are some things that you can do within the cur-
rent law that would derive a different result by the lending com-
munity.

Mr. CoLRMAN. One final question— Dr, Longanecker, and I appre-
ciate your testimony and we hope to follow up with some personal
visits if you can come back and do this ad hoc, so we can see, if
we're working ti^ther, how we can get this thing done.

But let me ask you— one of the things that ware always told by
accrediting associations is that if we crack down on some of these
schools, they're going to sue us. And if they sue us, we could be
liable, and also, we could be tied up in court for years. Do we avoid
that scenario under your licensing suggestions by the State, or has
your experience been that the Mhools sue you instead of the ac-
creditation agency, and are they still tied up for years in court?

Mr, LoNQAN^KfiR. There will be suits. There are suits today.
There will be more suits. I think if we have nationally proved
guidelines and we operate under rules and i^ulations that are
consistent with th(^, then we aren't going to have as much liti-
giousness as we have today.

One of the dilemmas we have today, I think, is that if we have
fairly substantial i^ulation, then people say, "Well, that's outra-
geous." If we were to try to impose some of the thin^ we've even
suggested here, they would say, **You don't have the authority to
cut us off on the basis of that." But if its ^tablished that \ve
should develop guidelines within those parameters and we do that

443

and it's approved by the Secretary, we may still be sued but we'll
win the case.

Idr. Ccn^EMAN. Well, the difference is that one's a private, volun-
tary a8»)caation, the other one is imblic action b^ Ute State. And as
you indicated, as long as you are framed within the mvper l^;al
requuements of due pitx^s and certainty and are not heing vague
in ^ur regulations of the statutory language, itself— wherMffl the
accrediting agency is somewhat nebulous, and in a voluntary ot|^-
nization, it seems to me that we would do much better by moving
ahead toward this type of approach with some real teeth rather
than toward a continuing process that we have which has all sorts
of, I think, pn^lems with it.

Mr. LoNOANECKEB. I think one of the other dilemmas you have is
accrediting awociations are voluntary organizations that review
the progress of their members. And that's a very valuable piece of
the overall quality control activity in higher education. It s a self-
examination process. But if it, in fact, becomes onerous on the
selves they won't play in that game. It's kind of a Qitch 22 for

them. 1- .

Mr. Manning. If I may make a comment with respect to the liti-
giousness, that is a concern. The accrediting organizations are not
insured and, in fact, liability insurance, which they have had, has
just been dropped by the insurer because of their concern over the
costs of litigation which they were uncertain about. It is a problem.

You may, however, as you look into this further, want to exam-
ine the question of the Federal Bankruptcy Code, because wWle
chai^ges were made with respect to the l^islation last fall, we re
talking here about State authorization to operate. And it is not
clear what the status of that is with respect to protection under a
Chapter XI reorganization. So I simply rairo that as an issue.

yfy own feeling is we need a good triad, they complement one an-
other, and I stand alongside my friend, David Longanecker, in
saying we really do need to improve State authorization pnx^s as
we keep accreditation and deal more with the Federal eligibility
certification pnx^s, all three.

Mrs. LowEY. I want to thank the panel, and we look forward to
working with you. And I was pleased to see that there is a consen-
sus about the importance of improving State licensure, and I thank
you.

Will the next panel come forward?
iAv* Henry?

Mr. Henry. Thank you Madam Chairman. I would like to ex-

Eress my appreciation for the chair for allowing us to have this
rief hearing and this panel presentation on H.B. 2433, the Nation-
al College Athletics Accountability Act, legislation analogous to
that which the House adopted last year pertaining to public disclo-
sure of athletically derived revenues and expenditures.

By way of l»ckground to the panel and of wel(»me to our panel-
ists, Madam Chairman, let me indicate that one of the problems we
have in college athletics is that we have tolerated many of the
abuses in major sports pr(«rams under the assumption that these
programs generate revenues for the general operating bu<feets of
the school. And many of the abuses which we have seen develop
over the years have been tolerated by the public m the behef,

444

which we now know very clearly is mistaken, that big time athletic
pr^rams are revenue raisers for schools.

The magnitude of the financial losses attributable to athletic pro-
grams, i^rticularly in Division lA schools where the prc^rams
have grown increasingly large, continues to grow. And this matter
really relates very directly to the c»st of education.

A study— well I'll come to that in my formal statement in just a
minute. It would be fair to say that the average student at a Divi-
sion lA school, the a^^rage student in tuition chai^, is subsidiz-
ing athletic pn^ram los^, just Ic^sses, by $100 a year. If every stu-*
dent receiving a Stafford loan were attending a Division lA school,
the Stafford loan sul^dies on an annual basis for university athlet-
ics would amount to $170 million per year.

Over the 4 year cycle of higher education, that would mean that
over a 4 year cycle, one college cycle, we would have Stafford or
government sul^dii^ of athletic pn^am lossra approaching two-
thirds billion dollars. Now ^at's just the pn^am revenue loss^.
That does not deal with the subsidies for the operation. Very con-
servative figures would estimate that the average college student
at a Division lA sch(X)l is paying up to $100 a year in crat for ath-
letic department program subsidies, including losses but also other
operational crats.

I would submit, Madam Chairman, when one of the issues before
us is affordability higher education, that this is a serious problem.
Eighty-six years ago, there were 18 deaths on college footlmll fields
caused by violent play with inadequate equipment. That prompted
President Theodore Roosevelt to call for reform in intercollegiate
athletics. And the following year, in 1906, ^w the establishment of
the National Collegiate Athletics Association, the NCAA.

Last year in the Congress, three Right to Know bills were intro-
duced, relative to higher education. The first was introduced by
Congressman McMillen, our colleague who also served on the
Knight Commissi!^n, which called for discl(^ure of graduation rates
of athletes. The second was introduce by our colleague, Mr- Good-
line, to have disclraure of campus crime rates, particularly assault
and violent crime. The third was introduced by iny^lf, which
called for a disclosure by institutions on uniform data l^se of ath-
letically derived revenues and athletic expenditures.

All three proposals were placed t(^ether in one bill and passed
the House comfortably. However, in the Senate, the NCAA, an in-
stitution which was originally established Uirough Congress in 1906
to reform collie athletics, removed that latter provision relative to
income and revenue disclosure in n^tiations with the Senate and
the Conference in the wanixig hours of the session.

However, the public, again, is looking to bring about reform in
coU^e sports. Death is no longer the obvious danger, but many
livelihoods are at stake. Big time athletic prc^ams have taken
focus and resources away from acaderuics at the very moment in
our history when America's level of play in the global marketplace
and in the world of ideas is slipping.

Now is that time that we, as a Nation, must examine our prior-
ities in higher learning. The members of this subcommittee have a
special opportunity as we revisit the Higher Education Act to write

445

the ojuree, to make the pMitive statement that this country's
young minds come first. .

Gnawing at the underside of our national love affair with college
sportB is the fact that it is a business bust, many athletira pn^
grams are millions of dollars in the red despite sellout crowds and
post-season appearances. A 1986 study by the American AsBociation
of State Colleges and Universities found that among 67 NCAA divi-
sion schools, only 9 generated surplus revenues. They fear that our
colleges and universities are mortgaging their academic programs
and their integrity on deficit-laden sports programs. I believe the

Eublic has a right to know about it through disclosure of their
udgets. , , .

No data exists to support the popular perception that athletic
success benefits academics or any other aspect of the college or uni-
versity other than the sports program itself, and I believe the
public should know about it. Alumni giving inspired by sports is
almost always directed at the sports programs itself. Sports gener-
ated revenue from sources such as ticket sales, broadcast income,
et cetera is most often quickly swallowed by the self-perpetuating

sports programs. , , . , ur.,

I have introduced legislation which would simply reouire public
disclosure of athletic revenues and expenditures at public schools
and private institutions that offer athletic scholarships. The bill
would simply bring to light information that's been buried for
yi^rs at most schools. , . .

Madam Chairman, here's what has to be understood: many of
these prt^ams are off-budget items with privately incorporated
athletic departments and programs. Thus, the revenu^, as well as
the cost, are often not available even to the college officers or the
boards of control.

My Illation is in no way intrusive in terms of telling a college
president or State legislature or a board of control or trustees how
they ought to manage their athletic pn^rams. It seeks, however, to
establish in law a uniform data base whereby the public can make
it well known to its governing officials, and whereby the boards
and the college CEOs can, in fact, get control of their athletic pro-

grams. i j *. i

It will be argued in the t^timony before us that such data al-
ready exists. The NCAA presents a report which was published iust
last year on a 5 year study of its own programs. However, m their
own study, there was over a 40 perrent nonparticipation rate, and
the thirf highest expenditure totalled in that study is miscellane-
ous. There's no guarantee of uniformity in the data.

Even the Kn^pht Commission report does not make any recom-
mendation guaranteeing uniformity, mandating c»llection of the
data, or most importantly, disclosure of the data. And that is why
Representative McMillen, who served on that commission, is also

supportive of my fluest in this area.

With that. Madam Chairman, I would like to introduM two
people who are here with us to deal with this: Mr. Andv Gei^,
who is the Athletic Director of the Universitv of Maryland, and Dr.
Murray Sperber, an English Professor from Indiana University. Dr.
Sperber has written a venr well-known book called College Sports,
Inc. which has provided a lot of interest in this issue.

ERIC

446

Also, Madam Chairman, I would ask unanimous consent to enter
into the reotrd a written testimony presented by sports broadcast-
er, Howard Cosell, whose book is approaching the best seller list,
Whats Wrong With Colte^ Sports, the first $0 pages of which deal
with the problems of coll^ and university sports, and also a writ-
ten testimony provided by Robert O'Neil, a professor of law at the
University of Vii^ia.

Thank you Madam Chairman.

Mrs. LowKY. Without objection, thank you Mr. Henry.
[The prepared statements of Hon. Paul B. Henry, Howard Cosell
and Robert O'Neil follow:]

447

OPENING STATEMENT BY REP. PAUL HENRY (R-MICH)
ON THE NATIONAL COLLEGE ATHLEHCS ACCOUNTABILITY ACT

HR.2433

BEFORE THE SUBCOMMTITEE ON KWTSECONDARY EDUCATION

MAY 30, 1991

Mr. Chairman:

Thank you for this time to discuss an increasingly cntical topic.

Eighty-six years ago, 18 deaths on college football fields, caused by
violent play with inadequate equipment, prompted President Theodore
Roosevelt's call for reform In inlercollegiate athletics. The foUov-'ing year,
1906, saw the establishment of the National Collegiate Athletics Association
— the NCAA.

Today, Washington once again is looking to bring about reform in
cdlege sports. Death is no longer an obvious danger. But many American
livelihoods are at stake. Big-time athletics prc^ams have taken focus and
r^owces away from academics, at the very moment in our history when
America's level of play in the global marketplace, and in the world of ideas, is
slipping.

Now is the time that we, as a nation, must examine our priorities in
higher learning. And the Members of this Subcommittee have a special

448

opportunity, as we revisit the Higher Education Act, to right the course — to
make the positive statement ttuit this country's young minds come first.

I am a former college professor and a former member of my state's
Board of Education. And, most importantly, I am a father. I understand the
importance of higher education.

I am also, like many, many Americans, a fan of college sports. And I
understand, particularly as an alumnus of Duke University, that It is athletics
programs that provide the means by which mc^t colleges and universities are
known today.

But, gnawing at the underside of our national love affair with college
sports is the fact that it is a business bust. Many athletics pro-ams are
millions of dollars in the red, despite sell-out crowds and post-season
appearances. A 1M6 study by the American Association of State Colleges and
Universities found that among 67 NCAA Division I schools, only nine
generated surplus revenues, 1 fear that our colleges and universities are
mortgaging their academic programs and inl^ty on defidt-laden sports
programs. And, I l>eHeve the public should know about it.

No data exist to support the popular perception that athletic succ^
benefits academics or any other aspect of the college or university, other than
the sports program itself. I believe the public should know about it.

449

Alumni giving inspired by sports is almost always directed at the sports
program. Sports^nerated revenue from sources «uch as ticket sales and
broadcast income is most often quickly swaUowed by self-perpetuating sports
programs. And I believe the public should know about It.

1 have introduced legislation that would require public disclosure of
athletlo revenues and expenditures at public schools that offer athletics
scholatships. This bill, H.R. 2433, the National College Athletics
Accountability Act, would simply bring to light information that's been
buried for years at most schools. The legislation would put athletics programs
In line with most academic departments, whose financial books are open.

My goal is simply to provide the public with the tools of knowledge as
it seeks to understand the role of athletics within host inslituHons-

This biU was passed by the House last year as part of the College
Student Right To Know Act, but the financial disclosure language was
dropped in conference during the waning hours of the Congress.

Mr. Chairman, we are by now familiar with the excellent work of the
Knight Commission, and its series of reform proposals And we are also
familiar with the growing consensus within Congress, that the College Sports
Reform Movement has arrived on Capitol Hill. Interest is growing in
Congressional remedies. But the Ust thing we shou.d consider are policies
that would amount to government-managed university programs.

ERJC

450

However, that approadi appears to be the traui in several Mis being
considered or planned in this Congress. Among their provisions aie new
C6i^gres»jonaIly-impo$ed lequiremenls for the distribution of f>o$t-season
revenues among NCAA member sdmls, mandated "due jrocess"
procedures for the NCAA, and restructured governing and advisory bodies
within intercollegiate athletics. These are examples of what I consider to be
the wrong legislative direction.

1 believe that Congress does have a role in encouraging reform, but that
role must stop short of federal meddling in the actual governance of our
nation's colleges and universities. I believe that the missing, hands-on
players in the college sports reto-m process are the American people It is
their tax dollars that support the institutions of higher learning whose names
are carried by their athletics programs.

Let me reiterate, Mr. Chairman: My approach has been rooted in a
concern shared by more and more Americans: We must, as a nation, reassess
our educational priorities. The role of intercollegiate athletics is one crucial
issue we must re-think. And in that sense, the issue is central to a serious
discussion of education reform.

Will public disclosure of athletics budgets make it easier for the public^
ccrflege administrators, and college boards to demand accountability? Will
they be able to ask more questions about the role of sports pnagrams in their
colleges and universities? I hope sa

451

I am not anti-sports, Mr. Chairman, and my bill is not anti-sports.
College sports definitely has a place on our campuses and in our national life,
1 am simply asserting that the public, through access to reality, must 1 e able to
help determine that place, at a time of intense concern over the kind of
graduates our schools are producing. Afterall, when did we last import a
quarterback to Japan?

Mr. Chairman, James Duderstadt, the president of one of the nation's
truly excellent higher learning institutions, the University of Michigan, once
slated that he hopes one day that his school v ill be known more for its Nobel
Prize winners rather than sports championships. 1 share his hope, as Ym sure
my colleagues do as they think about the schools in their own slates. It is in a
spirit of hope and true concern that 1 have introduced H,R 2433, and I want to
thank you again, Mr. Chairman, for this opportunity today to discuss the bill

Let me conclude with a quick word of thanks to our two wimesses
today, Mr. Andy Geiger, who is the athletic director at the University of
Maryland, and Dr. Murray Sperber, an English professor from Indiana
University, recognized naHonally as an authority on the topic of finances in
college athletics. I also ask for unanimous consent to enter into the record
written testimony provided by Robert O'Neil, a professor of law at the
University of Virginia and general counsel of the American Association of
University Professors, and from the renowned sports commentator, Howard
CoselL

45,')

ERIC

452

ABC fUOtO ^ffTWmKS

125 ErxJ Avenue Np»% Vyrh Nf-w Vo**!* 10023 «212) 687-5169

Ky nsM is Hovard Cracll* I hava bMn a sport« coamentator
assc^iat^ vith tha Amarican Broadcasting cc^Mmiaa for «>ra than
38 jTMra* During that tin ay lifa haa chartarad many couraaa
but I hava boan unwavaring in ona, and that Lm wy conviction
about aducation and tha fact that collaga aporta aa praaantly
conatruetad hava not baan a banaf icial forca in tarn of
aducation.

It ia claar that at thia point in tiaa aducation haa navar
baan aora i^^rtant to tha AMrican aooiaty. During tha couraa
of ay lifa X had tha privilaga of baing invitad to conduct a
fully accraditad couraa at Vala antitlad •'Big xiM Collaga Sporta
in tha Aaarican Sooiaty." I had baan invitad to coma to Yala by
Kinman Bravatar aa a Hoyt Fallow at SilliBan Collaga. it waa an
invitation I aagarly accaptad and it darivad froa Dr. Bramtar's
axpraaa^ raapact for »y raporting worX on tha 1968 Olyi^ic ooaes
in Maxico City. Subaaquantly Dr. A. Bartlatt oiaaatti aada it
abaolutaly claar in nationally racordad convaraationa with aa
that **Athlatica can ba an aaetanaion of tha baat valuaa wa hava
and tha baat a univaraity haa to of far ita atudanta. But that 'a
not tha way it ia today.

Thara ia a fiction about aporta ~ ona of tha graat aytha in
our aociaty. itiia ia tha fiction that phyaica laboratoriaa and
graat contributiona toward laamii^ dariva froa prof it a in
aporta* Thia ia not ao* On tha contrary, aoniaa dariving froa
athlatica taaaa ara pmirad ritftit back into athlatic prograaa. so
graat a univaraity aa tha Uhivaraity of Michigan, with ao aWllad
an adainiatxator aa Don canhaa, ia a priaa axaapla. Tha athlatic
dapartMnt ia aaparataly incorporatad uid tha aoniaa go right
bacX into raenxitaant and aubaidisation of athlataa*

Lika Ccn^^aaaan Patil Hanry, I do not want to aaa govamsant
ragulation of collaga aporta, but propoaad billa lijta Mr. Hanry's
ara daaignad, not to ragulata collaga aporta, but rathar to halp
ahad light on tha trua atata of coll^ aporta. John Bradaaaa,
Praaidant SMritua of Haw York Univaraity, apant many yaara in
Congraaa aa an Indiana lagialator. Ha craatad tha Univaraity
Athlatic Aaaociation i^an ha to^ ovar at Haw York thiivaraity.
Ha, lika congraaaaan Hanry, waa daapXy ooncamad with collaga
aporta and ha waa daaply ooncamad with aducation. Thua tha
Univaraity Athlatic Aaaociation, raapriaad of a group of tha
finaat univaraitiaa and ^llagaa In thia country, waa bom. Tha
AaaociatiOT ineludaa tha Unii^raity of Chicago, ifaahington
univaraity of St. Louia (idiara X dadioatad thair athlatic
facility) , camagia-Stellon, am Vaatam Raaaxva, Univaraity of
Rochaatar, Brai^aia Univaraity, Haw York univaraity, Johna
Hopkina Univaraity (whara I dalivarad tha conancaaant addraaa

ail

453

tm y«a« ago), and Emory Unlvw^lty, and thw mxm proof poaitiva
tliat you owi dorivo tte boot valtto of sport vithout dofiling
odttoational standards.

So M ara asking inroi^ and tengrMsnan Bsnzy*s sfforts ara
vital and to ba ^npiauM, as an tba afforts of sanator aill
Bradlay of Kav JwMy and <^ngraaaun ton MtMillan of Kaxyland.
I li^ thrmigh tJia horror of tte XUnioh Olynioa with
anrnMSW NoifillBn,. x iaft thm graat stadiia «i saptaabar 6,
1972 vith tlia vorda of tlia lata Avary Itonu^ga ringing in sy
Mrs* tlia gasa« go Ijrtll nsvar forgot that day*

Also with «a vara ay lata wifaf Ba>y# airt Doug Collins, iww an
tma analyst, than tha star of our olyapio taaa. I will ^•^^^
forgot that day. Rad Saith wrota an iapasaionad colian daaanding
tha cancallation of tha gaMa« I aaid, ^Thara was a tlaa for
Avary Brundaga. It wm tha tiM of William of Oranga.» What all
this points out ia not Just tha national , hut tho intamational
confusion about tha pnq^ placa of sports in this socisty,

X thank Congraasaan Banry for his afforta and 1 think tha
country should ba grataful to hia. X siqpport his afforta aa X do
Sanator Bradlay'a ai^ CongrasMan NcMillan^a. ftasidant Bush
wants to ba rsaambarad as tha Education Praaidant, ayabolising
tha iaportanca of tha vary work that ia baing undartaksn.
Sanator Katsanbaua of Ohio ia daaply intaraat^ in thasa sfforts
ftlso* Ths tragic story of Daxtar Nanlay aust not ba rapaatad and
this ia only ona axaapla«

I thank tha Cnaittaa for thia opportunity and I look
forward to tha dUanca to aj^P^ar bafora Congrassaan Hanry'a forua
parsonaily at a auitabla data in tha futura*

ERIC

454

AMf R!C AN A*iH.X.'!AT!0\ OF UXIVEiesrn PROFESSORS

May 30, 1991

Suiment Sulsnitted by Professor "Robert F. ONeil to the House Education and Labor
Subconunittee cm Postsecondary Education

Hearing on X!<^ege Athletics Rnanaal Disdosure and Public ActountobiJity^

Professor CNeil is Professor of Law at the University «rf Vir^nia and Genml Counsel
of the American Association of University Pro^suns

ERIC

455

fbcal and operatkmal integrity in intntoltoglAte athtetics. ThcM are mmSy not easy
timo for univemlty athktk |m>gf am&. Thmhasbmiuiiimoedeiiled^tenliimtotiwse
is»uc$ from the media, from several leveb of gornnnvnt fnnn governing boanl^ am!
of couise from wtihin tfw oc^lc^ athtetic 1^ The recoil ittotta of t!^ repc^
of the KniglitConixnisaksii attests to the exctpHcmai Impor^^
itsrif today attadies to tl^se issues - and the urgency wi^ whkh ¥m fade i(dtttioR»,

The queslkm hehm you is v^iether Qmgress ought to «ki its mandate lo time
ofothenk However uigent and critical you bdteve to be the imMam of fisc^
and accountabili^, I would urgs gmt cautnm before aikSii^ federal stasKtonis to a field
^t la increasingly nsgulaled by ottieim. At least it woM secsn wise to wait long
enough U> see %tfhat effect otl^ ccsitrols may have, before condt^ing that
Coiigress need step in with a uniform set of natimai federal standards.

The National Collegiate Athletic As$odaUcn itsdf has dramatkrally increased its
ovmight of financial mattcm The rules ai&^Hed sevi^ years ago add many new
requirements - notably Ihe mandate by which ev^ presidOTt or dtanceUm* must
receive amJ review an annual audit of tite aOiletic program ami irf alumni of ottier
gnnq^s ^ch provide financial su^rt to ^ athletic program. Frosn my own
experience as an university presidait at the time thte rule took effect I can assure you
the level of infonnation ami attention increased dramatically. We do demand tiie audits,
we receive them promptly, and we read tl^m with care. We also aie now in a positicm
to keep our goveming boards infonned of financial issues in the athl^ program^ to a
degree that seldom was possible at most institutions in the past - and was not required
by NCAA or conference rules.

Thwe has also been much greater concOT ot the part of regional accrediting
assodatiom. The Southern Assodatikm of CoU^es and Schods reoendy added
intercollegiate athletics to the areas about whUit a visiting team must have information,
and to which its attention mtist be given in every review. While of course no institution
has yet been denied accrediution for this reason, such a sanction is apparency now
possiWe for the first time in the history of r^onal accreditation^ Here, too, is a major
new approach that might to be given time er^gh to work before deciding that Congress
must intervene. Cteariy the accrediting community has begun taking to heart the
challenge of athletics, and has concluded that it h^ a role to play in reform.

Ttoe are other major effort in procesA. You are well aware of the
recomn^ndattons of the Knight Foundation Commisuon^ co-duired by former
University Presiiknts William Friday and 'n\eodc»e He^mr^ The commission several
weeks ago released a report with a number oi important and timely proposals, most of
which will need time for study and implem^tation. Many <tf those proposals respond
lo the concerns that underlie the legislatic»i now befc^e you-

Finally, 1 would rwie that the American Association of University ProfessorSii of

456

which I «m Goiml CoiawL has recently Isimd a report proposed poUdcs on
AdiMc mattcfi - i bold and luyv^ initittfve a groi^ hislt»kaUy fiDm^mted with
factilty rights and reqwnslhaittes. After fitm Fe^iuiy n^eting of the Assodation's
Executive Omimtttee^ the report was tniKle |hMc ami recdi^ asiskte^ attention
in die h^ter educate presa. Two par^aj^ give speda) attention to matfcfs of
finance. By quoting tfme t«i^ paragra}^. If I may, I woi^ hi^ to ocmv^ to the
subconunittee a s«we of the concern and the conviction of a major nati^al organization
of college univmity faculty.

Bnanda) <q>eratk>ni the depailnmt of athletics, Induding
ali revenues received from outside groups, ahouhi be vau^ the fuU
and direct controi (4 the central «lmini»bnation of the
Complete budgets of the athlette depamnent for the ooo^ yw
and actual expenditures and revenues for the pM year should be
puHialwd in full detail Annual budgets, as w^ m kw^^rm
pUns should be apfRwed tmder the regular govi^nanoe procedures
of the campus, with injmt fnm elected faculty rejmsoitatim.

PirticuUr scrutiny should be givoi to iw of the institution's
gmwal qierating funds to suppcrt tt» athletic department
Institutions should establish regulations governing the use
of and fm Ua^ university facilities by pdvate businesses,
such as summff athletic campa. Fees charged to coaches should
be assessed on the same basis as those chained to faculty and
otha* sta0 ^igaged in private businesses on campus^ Fubli^ied
budgets slunild indude an accounting of maintenance expestses lor
sports facilities, activities of booster groups, payments hy
outsiders for appearances by coaches ai^ oth&- athletic staff,
payments by sports apparel companies, aitd sources of sdtolarship
funds.

457

AMfWCAN ASWCIATION OF UNlVT,RSm rRV)l-tSS*.^RS

fVfttIP STATEMENT ON IWTERPfH.t.gr:t^TE ATHLETICS

Adopted by th9 AAUP Executive CoBeitt«e« Fabruary 18, 1991

Concern ebcut pervaeive abueee in intercollegiate athletics
ie widespread both in higher education and in the coiaaunity at
large.

He solicit cpments both on the substance ot this stateTsent
of the problem, and on the foroat that would waXe it appropriate
tor adoption by faculty senates and siailar bodies as an
expression of desired policy for their institutions.

On Mny cavpuses the conduct of intercollegiate athletic
programs poses serious and direct conflicts with desired acadewic
standards and goals* The pressure to field winning teans has led
to widely publicised scandals concerning the recniitnent,
exploitation, and acadesic failures of aany athletes.

Expenditures on athletics »ay distort institutional budgets
and can reduce resources available for acadeaic functions. Within
sqine academic prograss faculty Mvbers have been pressured to
give prefsrential treateent to athletes. Coaches and 8thle\ ic
director! ere thesselves often trapped in the relentless
conpetitive and financial pressures of the current system, and
many would welcome refom*

Not all institutions have probleas with athletics of the ease
type or to the earn degree. NevertiielMs, we believe that all
colleges and universities would benefit fros the adoption of e
national set of standards that would protect athletes from
exploitation and get expenditures on and administration of
athletic prograas under the regular governance procedures of the
institution .

We urge faculty participation in the cause of reform. We
urge our adainist raters to enter into national efforts to
establish new standards through the HCXA or other regulatory
agencies. We specifically endorse the following proposed
reforms and aek faculty colleagues, adainistrators, and athletic
department staff throughout the country to join with us in
worKing to implement thea on their caapusem, in their athletic
conferences, through the NCAA, ai^ nationally:

458

AmiSSIQM Am ACAPKMTq Wfflffly.^fi

1. In»titttticm« should not um adaission standanU for
«thl.«tM that «ra not ccn^rablv to tlioe* for othar »t^ulants•

^ *^^^*^f? «l«ctad by tha faculty abould wonitor tha

coBplianca with policy ralating to adaiasion, tha prograM toward
graduation, and tha intagrity of tha couraa of study of atudants
vho angaga in intarcollegiata ^thlatica, this oonlttaa should
raport annually to tha faculty on ad»ission», on prograss
toward graduation, and on graduation ratas of atMatas by sport.
Furthar, tha cc^ittaa ahould ba chargad with saaking araropriate
raviaw of casss in which it appaars that faculty aawbarTor

* ^^^^ abusad acadasic intagrity in ordar to proaota
athlatic prograns.

AVQIDAWC£ OF EXPLQIT4T>tCT

w Studants who ara athlatas nsad ti»a for thair acadaaic
JIfI^«#*r';fi5**}°".J? intarcollegiata athlatica in tha first
yaar of collaga is ilX-advlsad. Athlatas should hava at laast
ona day a vaaX without athlatic ^ligations, Ovamight absancaa
on waakday avaninga should ba kapt to a aaxisus of ona par waak,
Iii^4^?^*T?*"'^^f^"*: nuabar of avants par saason should be

f i^iff^^*!^ ^««^"ity- Studant athlatas should be

intagratad with othar students in housing, food aervica,
tutoring, and other areas of canpus life,

^ standards for athletes should ba coaparable

to those for other students. The aid should ba adainistered by
the financial aid office of the institution. The assessaent of
financial need may take account of tiae demands on athletes which
may preclude or liait eaployaent during the acadaaic year.
Continuation of aid to students vho drop out of athletic
coapetition should be conditioned only on their remaining
acadeaicaUy and financially c lified*

FINAyCING ATHI^iyff. WYTRNAH^IR

S, Financial operations of the departaent of athletics,
including all revenues received from outside groups, should be
under the full and direct control of the central adainistration
of the cattpus. Complete budgets of the athletic departaent for

v^!/*^ f^^H!"" "J!?4*S!!i*J »nd revenues for the past

year should be published in full detail. Annual budgets, as well
as long-terw plana should be approved under the regular
governance procedures of the caapus, with input trom elected
faculty representatives,

6- Particular scrutiny should be given to use of the
institution's general operating funds to support the athletic
(Sapartaent. Institutione should establieh regulatione governing

ERIC

459

thm UM of mna fM« for univanity facilitlM by privato
biiainaaam, mac^ as aumnar atHXatlc cai^a. Faaa dtiar^ad to

faculty and othar ataff an^agaa in i>rivata towlnaaaaa cai^a.
Publiirtiad Imtf^ta aliould inoltula an aeomintin9 of saintananca
axpanaaa for aporta faeilitiaa, aetivitiaa of Ibooatar qroupa,
payamta by outaidara for appaaraswaa by coa^iaa and othar
athlatic Ataff, payaanta by aporta apparal CMpanlaa, and aourcas
of acholarahip funda.

7. Slactad faculty rapraaantativaa ahould cc^riaa a
aajorlty of tha casqma coaalttaa irtii<^ foraulataa ca^a athlatic
policy, and auch a conittaa ahould ba chairad by an alactad
faculty aanbar.

8. Faid-for tripa to gwaa, and othar apacial banal ita for
faculty, adainiatratora, or aaabara of ^ovaming boarda involv«l
in tha ovaraight of athlatica, vhathar of farad by tha univaraity
or by outaida groupa, craata confix jta of intaravt and ahwld ba
alialnatad.

9. In onlar to avoid tha ob«taclaa to unilataral rafora
affortat tha faculty baliavaa ita chiaf adainiatrativa officar
ahould join vith oountarparta in othar inatitutiona to puraua
thaaa raforaa and raport annually to tha acadaaio csCTmnity on
tha prograaa of such afforta*

10. Beginning fiva yMra froa adoption of thMa principlaa
at an inatitution, athlatic avanta ahould ba achadulad only with
institutional and vithin eonfarancaa and aaaoeiationat that
coaait thaasaivaa to tha iaplsaantatim of thaaa principlaa.

Institutions should radoubla thair afforta to anroll and aupport
acadaaically abla atudanta froa diaadvantagad baclcgroui^
ragsrdlaaa of thair athlatic ability. Athlatic prograaa navar
ahmld bova baan oonsidarad aa a aajor vay of ai^yporting atudanta
froa diaadvantagad bsd^frounda in inatitutiona of hi^^r
aducation. If thaaa rwonandatima ara ^optad^ athlataa
ladt aoadaaic akilla or intaraata will w Imgar ba anroiiad, and
aoaa of thoaa axclodad will ba fros aucd) backgrounds* In tha
intara^ of such athlataa, inatitutiona and tha NCM ahould avoid
ragulat^ona that int^rfara vith tl» formation of othar
channala of antry for thaaa athlataa into profaaaicmal athlatica*

eoachaa ahould ba aa saa sa d on tha

taaia aa thoaa chargad to

3/5/91

460

Mrs. LowEY. Mr. Geiger and Dr, Sperber, your entire statements
will be entered into the record if you care to summarize. And we'll
begin with Mr. Geiger. Thank you,

STATEMENTS OF FERDINAND A GEIGER. ATHLETIC DIRECTOR,
UNIVElSITy OF MARYLAND. COLLEGE PARK. MARYLAND; AND
MURRAY SPERBER, PROFKSOR OF ENGUSH. INDLiNA UNI-
VERSITY, BLOOMINGTON. INDUNA

Mr. GmoER. Thank you. Madam Chair, Congressman Henry.

My name is Andy Geuer. My name is An^ Geiger. I am Direc-
tot of Athletics at the University of Maryland. Cmege Park. I ap-
precute the opportunity to appear today on behalf of the National
C!ollegiate Athletic Association.

With reference to the general issue before the subcommittee, col-
lege athletics finaiKnal disclosiue and imblic accountability, tl^
NCAA believe that the dominant responsibility for such disclosure
and aaountability is and should be to the institutions chief execu-
tive ofncer and its board of trustees or r^ents.

Thus, NCAA regulations require that budgeting for intercolle-
giate athletics be controlled by the institution and subject to its
noraial budgeting procedures, and that the chief executive officer
m the institutions or his or her designee from outside the Athletics
Department approve the annual budget

NCAA regulations also requiiv, except with reference to the
smaller programs, that an independent audit of inteicollraTate
athletics expenditures be conducted on a regular t»siB annually in
the case of Division I institutions, and every 3 years in the c^e of
lAviaon U institutions. These provisions are designated to assure
that the institutional CEO and trustees are in a position to deter-
nune what role intercollegiate athletics is to play in institutional
lifie.

It is safe to say that my institution, the University of Maryland.
5^ Atlantic Coast Conference, of which it is a member, and the
NCAA member^D believe that ttiis determination is moet appro-
priately made by those individuals and not by the Federal Govern-
ment or the public at laive.

The l^islative proposBd offered last year to require publication of
financial data was said to reprewnt an aid in determiniiur the
prop"" role of college sports. TTie fact is, however, that significant
public data already exists as to the revenues and expense in inter-
collegiate athletics programs. For several years, this data has been
collected and reported l>y Dr. Mitchell Raibom, a professor of ac-
counting of Bradley University.

^^^^ study, covering the years from 1981
through 1989, provides specific data for each NCAA division as to
revenues and expenses of institutional programs, broken down be-
tween men s spovte and women's sports, and further broken down
tn the case of men's sports to wparately account for footiicUJ and
basketball.

The NCAA membership finds it difficult to understand what ad-
vantages are to be gained l>y requiring an annual per-sport audit of
revenues and expenses as proposed under H.R. 2433. Such an ap-
proach enviously radically mcreases the detail necessary for defin-

EMC

461

ing proper allocation of individual items of revenue and expense,
and the pc^ntial for distortion is similarly heij^tened.

Quite frankly, however, the NCAA is less concerned by the de-
tails of an institutional accounting method than it is by the view
that legislation such as the bill now being proposed is necessary in
order to deal with the various issues involved in the adminstration
of intercollegiate athletics in 1991. The NCAA membership simply
does not agree and believes that events of the last several months
demonstrate that the education community has both the will and
the capaci^ to accomplish serious reform of the intercollegiate ath-
letic system without the necessity of Federal involvement.

The fact is that a carefully prei»red process of redirection of
intercollegiate athletics was seriously begun at the January 1991
(invention under the leadership of the NCAA President s Commis-
sion, a 44-perw)n body of institutional CEOs eiyoying significant
powers under the NCAA's organic documents.

The Commission designed and brought to the convention an inte-
grated reform package involving reductions in permitted recruiting
activities, phasing out of athletic dormitories, limiting the nimiber
of coaches for Division I sports, cutting back the number of permis-
«ble grants and aids to student atMetes, and reducing permitted
atretics time demand on student athletes. All of the Commis-
sion's reforms were overwhelmingly adopted, in mi«or part be<»use
the Commission vigorously lobbied its proposals to CEX)s through-
out the NCAA membership.

Detxturtors have suggested that PrMidential interest will now
wane and that the 1991 Convention will prove to be aberrational. It
b obvious that the President's ConmiiE»ion does not plan to permit
this to happen because it has abtsady b^fun serious work on its
proposals, this time with reference to tighten admissions and, its
satisfactory progress, academic standards for student athletes for
the 1992 Convention this coming January.

The NCAA membership submits that although not all people
within and without the education community will agree as to the
appropriate role for intercollegiate athletics in the postsecond^
education process, mnet will agree that the proper group to decide
ttiis issue in its various complirated aspects is that comprised of
theinstitutionalchief executives, themselves.

The process of redefining that role for at least the l»lance of this
century is now weU underway under the leadership of the NCAA s
President's Commission. And the NCAA memberships invites close
scrutiny of this process both by this subcommittee and the pubhc.
The NCAA doubts mriously, however, that i^uBage of H.B. 24^
will contribute in any significant way to the success of the process.

The final recital to HJl. 2483 states that per«port revenue ex-
pense data would be helpfiU in assuring institutional control of
intercollegiate athletics programs. As stated earlier, that assurance
alrrady exists, pursuant to specific mandates of the NCAA regula-
tions.

(The prepared stetement of Ferdinand A. Geiger follows:]

ERIC ^

462

For Release 9:30 A.M»
May 30, 1991

STATEMENT OF FERDINAND A. GEIGER
on behalf of
THE NATIONAL COLLEGIATE ATHLETIC ASSOCIATION
before the
SUBCOMMITTEE ON POSTSECONDARY EDUCATION
Of the

CCWMITTEE ON EDUCATION AND LABOR
May 30, 1991

My name is Andy Geiger. 1 am Director of Athletics at
the University of Maryland, College Park. I appreciate the
opportunity to appear here today on behalf of the National
Collegiate Athletic Association, of which my institution is a
member. Prior to taking my current position at Maryland^ I was
Director of Athletics at Brown University and the University of
Pennsylvania, and most recently at Stanford University, I have
served for several years on various NCAA Committees- including
most recently its Men's Basketball Committee.

The NCAA i*s an unincorporated association of
approximately 1100 m«nbers, over 800 of which are four-year
colleges and universities. The Association Is dedicated to the
promotion and regulation of intercollegiate athletics. The
member institutions of the NCAA, acting in annual convention,
adopt the substantive rules for the conduct of intercollegiate
athletics and for operation of the association itself* Contrary
to popular belief, the nation's colleges and universities are the
NCAA.

The NCAA understancs the focus of there hearings to be
the issue of college athletics financial disclosure and public
accountability, but that its views are also more specifically
sought on HrR. 2433, a bill which would require institutions
awarding athletically-related financial aid to cause an
independent annual audit to be conducted of the per-sport
revenues and expenses of its intercollegiate athletics program,
and to make that audit data available to the federal government
and the public.

AS the Subcontnlttee is aware, the JK:aa mewbership
opposed a fundamentally similar pioposal last year. In the
-right •^to-know" legislation ultimately adopted by the Congress,
that proposal was dropped In favor of a mandate to the Secretary
of Education to study and report on the feasibility and
desirability of requiring production of this per-sport
revenue/expense data. To the knowledge of the IK::aa, that report
is still in the process of preparation.

With reference to the general issue before the
Subcommittee — college athletics financial disclosure and public
accountability the NCAA believes that the dominant
responsibility for such disclosure and accountability is and
should be to the Institution's chief executive officer and its
board of trustees. In the case of state- supported institutions,
this responsibility will obviously also extend to the state
legislature.

Stated otherwise, the NCAA members believes that
responsibility for disclosing and justifying operational results
of the intercollegiate athletics progrwn is identical to and
coextensive with the amnm requirements for every other
institutional program. The fact that a segment of the American
public often appears to have a greater interest in this aspect of
institutional affairs does not provide, in the NCAA's view, the
basis for suggesting that the chief executive's and trustees'
authority is any greater, or any lesser, than with respect to all
other institutional progrwrts.

As to intercollegiate athletics, the NCAA's member
institutions have adopted a number of rules designed to reinforce
this authority on a canmon basis. Thus, NCAA regulations require
that budgeting for intercollegiate athletics be controlled by the
institution and subject to its normal fcnjdgeting procedures, and
that the chief executive officer of the institution (or his
designee from outside the athletics department) approve the
annual budget. NCAA regulations also require^ except with
reference to the smallest prc^r»ns, that an independent audit of
intercollegiate athletics expenditures be conducted on a regular
basis — annually in the case of Division i institutions and
every three years in the case of Division II institutions*

Also noteworthy in this general regard is the NCAA
requirement that every five years, member institutions must
conduct a comprehensive self -study and evaluation of their
intercollegiate athletics programs, covering such topics as CEO
control, finances, personnel, recruiting, services for student-
athletes, and sports progroDS* On request, this evaluation must
be made available to the NCAA. This self-study requirement is
regarded by many individuals as a necessary preliminary to a
program of Institutional certification, scheduled to be
considered by the 1992 Convention.

- 2 -

471

^ BEST COPY AVAILABLE

464

All of thesm provisions, into place by the MCAA
member Institutions then^elves, are designed to assure that the
intercollegiate athletics program is operated as an integral part
of the institutional structure, that the CEO and trustees are
presented with full and accurate data ccmcerning that program,
and that these institutional managers are In a position to
determine what role that progrwn is to play in institutional
life. It is safe to say that my institution — the University of
Maryland — the Atlantic Coast Conference and the NCAA memhership
believe that this determination is most appropriately made by
those individuals, and not by the federal governrrwnt or the
public at large.

The legislative proposal on this subject offered last
year was said to represent an aid In determining the proper role
of college sports. The fact is, however, that significant data
— made publicly available at the initiative of the NCAA itself
and at its expense — already exists as to the revenues and
expenses of intercollegiate athletics programs. For several
years, this data has been collected and reported by Dr. Mitchell
Baiborn, a professor of accounting of Bradley University. Dr.
Kaiborn's most recant study, ^blished just seven months ago and
covering the years from i981 through 1989, provides specific data
for each NCAA Division as to revenues and expenses cf
institutional programs, broken down between men's sports and
women's sports and further broken down, in the case of men*s
sports, to separately account for football and basketball.

In general, the Raiborn study which is based upon
voluntary responses from about 57% of the NCAA manbershlp
shows that on tl i average, institutions in all JCAA Divisions
except I-A have operated at increasingly large deficits over the
course of the decade; Division i-A institutions |ln general the
largest institutions) on average have shown a modest operating
profit* Institutional trustees and CEOs are only too aware of
this data, and for this reason, a major emphasis of recent NCAA
Conventions havs Indeed centered on cost-reduction proposals.

H.R, 2433 differs from the provision reported by the
Subcommittee last year in that it no longer appears to
contatiplate collection of per-sport institutional revenue/ expense
reports by the Secretary of Education and compilation of that
data for public consumption. This change appears designed to
meet the argument that such a program would require the
expenditure of undue amounts of federal funds on an ongoing
basis. The proposal nevertheless contemplates that the annual
audit will be conducted in accordance with federal '•guidelines"

suggesting that the necessary accounting system for performing
the audits will be defined by the government.

Dr. Ralborn, who collects revwiue and Mpense data on a
confidential basis from Individual institutions, provides only
the roost limited definition of •revenue" and "expenses* in his
report, and makes no effort, for example, to specify how to
allocate varitnis types of overhead expenses aAK^ng individual
sports nor how to acc<nint for institutional contributions, e.g. ,
campus security, ai^issicms processing, etc. to the
intercollegiate program* I believe that unless a uniform system
of revenue and expense accounting is devised, significant
disparities in ^counting methods will exist, with tte result
that ccmparisons of institutional data — particularly per sport
comparisons will be inaccurate and even unfair, without
doubt, creation and iw)nitorlng of this accounting systm will
require substantial federal input and expense.

Expense to the federal govarnn»nt will of course be
modest in comparison to that which will be incurred on an
incraroental basis by those institutions covered by the proposal:
not only need they devote staff tln» throughmit the year to
calculation of revenues and expenses, including overhead, on a
per-sport basis (a requirenmitt not appearing in HCAA budgeting
and auditing regulations), they must then pay the professional
fees of an independent auditor to prepare the required report on
that basis.

The HCAA estimates roughly that it has already devoted
at least $50,000 in staff time to preparing the necessary forms
for compliance by its members with the 1990 •right-to-knoW
graduation rate legislation (calci*lation of almost 1,100
different entries is required to complete the form) ; it further
estimates that each institution will ri^ire half the time of one
additional staff person to develop and repcrt the necessary data
each year — an aggregate annual cost for its Pivision I and IX
members of some $7&0,000. If the current proposal is passed, an
even more comprehensive set of institutional staff calculations
will be required.

The NCAA membership finds it difficult to understand,
moreover, what advantage is to be gained by requiring an annual
per-sport audit of revenues and expenses. Such an approach
obviously radically increases the detail necessary for defining
proper allocation of individual items of revenue and expense, and
the potential for distortion is similarly heightened* The
Raiborn study already provides significant summary data as to the
two "major* -^n's sports and as to women *s sports as a whole;
what serious social objective is met by requiring allocation by
each of thirty or forty sports does not readily appear,
especially when one considers the additional expense which would
necessarily be involved.

Quite frankly, however, the KCAA is less cQnce..ned by
the details of an institutional accounting method than it is by
the view, apparently held by sqm Members of Congress, that

- 4 -

473

466

legislation such as the bill now being proposed Is necessary in
order to deal with the various Issues Involved in the
administration of Intercollegiate athletics in 1991. The KCAA
mej«bership simply does not agree, and believes that events of the
past several months desironstrate that the education community has
both the will and the capacity to accwflplish serious reform of
the intercollegiate athletics system, without the necessity of
federal involvement.

The fact is that contrary to the claims of those who
last year were not really paying attention to what was happening
within higher education, a carefully-prepared process of
redirection of intercollegiate athletics was seriously begun at
the January 1991 Convention under the leadership of the NCAA
Presidents Commission — a 44-person body of institutional CBOs
enjoying significant powers under the KK:aA's organic documents.
After extensive consultation «nong th«nselves and with various
formal and informal elejiwnts of the intercollegiate athletics
structure, the Commission designed and brought to the Convention
an integrated reform package involving reductions in permitted
recruiting activities, phasing out of athletic dormitories,
limiting the number of coaches for Division I sports, cutting
back the number of permissible grants-in-aid to student -athletes,
and reducing permitted athletics time demands on student-
athletes.

All of the Commission's reforms were overwhelmingly
adopted — in major part because the commission vigorously
"lobbied* its proposals to CEOs throughout the NCAA membership, -
with the result that almost 30% of the CEOs were m actual
attendance, and many more had instructed institutional delegates
as to how to vote on the Commission proposals. In short, the
Commission mobilised institutional chief executives — who under
NCAA rules have always had the power to determine institutional
votes ~ and persuaded them as to the wisd«n of the Conmission's
package of reforms.

In an editorial appearing shortly after the i99i
Convention, the Chicago Tribune commented:

"what was expected to be a nip-and^tuck
contest [at the 1991 Convention} between the
forces of reform and defenders of the status
quo quickly became a rout . . . •

The results are enough to make even a
hardened cynic believe that college sports
really may be ready for reform.

467

As important as they are in thoir own
right, the proiK>saJs adopted at Nashville are
significant because they say who is in charge.
And that, finally* is who ought to be: the
chief executives."

I>etractors have suggested that presidential interest

will wane, and that the 1991 Convention will prove to be
aberrational' It is obvious that the Presidents Ccmmlssion does
not plan to permit this to happen, tecause it has already begun
serious work on its proposals — this time with reference to
tightened admission and satisfactory progress academic standards
for student-athletes — for the 1992 Convention. The Commission
is fully aware of the ongoing need to involve all elemmnts of the
intercollegiate athletics comnwnity in the process by which its
proposals are drafted, and it would be a mistake to assume that
the Cofwnlsslon intends to slacken its efforts directly to involve
institutional CKs. Without doubt* moreover, the recently
published report of the Knight Commission — highly supportive of
direct Involvement of institutional CEOs in the reform process —
will aid the Presidents Commission in its efforts.

The NCAA membership submits that although not all people

within and without the education community will agree as to the
appropriate role for intercollegiate athletics in the
postsecondary education process, most will agree that the proper
group to decide this issue in its various complicated aspects is
that comprised of the institutional chief executives themselves.
The process of redefining that role for the at least for the
balance of this century is now well underway under the leadership
of the NCAA President's Comission, and the NCAA membership
invites close scrutiny of this process both by this Subcommittee
and the public*

The NCAA doubts seriously, however, that passage of H,R,

24 33 will contribute in any significant way to the success of the
process. The final recital to HtR* 2433 states that per-sport
revenue/expense data would be helpful in assuring institutional
control of intercollegiate athletics programs. As stated
earlier, that assurance already exists pursuant to specific
mandates of the NCAA regulations, and it is hard to see how
jHJtting institutions to the trouble and significant expense of a
further, per-sport audit will add to the Association's existing
requirement of institutional control*

ERIC

468

Mrs. LowEY. Thank you.
Dr. Sperber?

Mr. Sperber* Thank you. Madam Chair.

One of the bmt kept secrets about intercollegiate athletics, well-
guarded because athletic defi^rtments are extremely reluctant to
open their financial books, is that in spite of the huge amount of
revenue from ticket sales and T.V. rights fera, most athletic depart-
ments lose money.

If profit and loss is defined accordiruT to ordinary busing prac-
tices, the 803 belonging to the NCAA, the 493 of the NIA, and the
over 1,000 junior coll^pra, only 10 to 20 make a (insistent albeit
small profit, and in any given year another 20 to 30 break even or
come close. All of the r^ owr 2,300, lew anywhere from a few
dollars to millions, annually, on a>ll^(e sports.

Thus, the myth that coU^ sports is immensely profitable for
the schools that supply the teams is false. And the corollary that
the money earned from this enterprise helps other parts of the uni-
versity is clearly untrue. All of the revenue that athletic deimrt-
ments generate stays in their cash drawer and at the end of the
year when the drawer is empty, they take money from otiber fmrts
of their colleges and universities, i:^ally from the general operat-
ing fund. Thus, dollars that could ^ for education^ purposes dis-
appear down the college sports deficit hole.

Don l^^son, chairman of Tyson Foods and a member of the State
of Arkansas Higher Education Committee, put the matter succinct-
ly when he commented on the multi-million dollar athletic depart-
ment deficits in his State, "We've got the deal spotted. If athletic
departments don't get enough money, they steal it out of the edu-
cation bucket/'

Whv we re here today and why Representative Henry introduced
his bill is that fact that ascertainii^ the exact amount of red ink in
college sports is extremely difficult. Because athletic deputments
are often autonomous or semi-autonomous units with little real su-
pervision Dy university officials, they can erect iron curtains
around their operatioi^. E!ven at public universities, where no legal
justincation exists for their secrecy, they will not reveal their true
financial situation.

One imiversity researcher on this subject said, "When I went
after athletic department books at public universities, even though
I clearly have the State Freedom of Information laws on my side, it
was always me and my lawyer and very i^tallow pockets against
the athletic department and the universities' lawyers ana very
deep pockets. I was told by one school timt they would Hght me to
the State Supreme Court rather than open their athletic depart-
ment books/''

And I know in my own research, this has certainly been the caqe.
Although, Mr. Gei^r points out on the NCAA books, there are var-
ious rerommendations for financial disclc^ure, in no way are these

Smblic, in no way did the Night Report endorro this, and that, in
act, is the crux of the matter it seems to me. Thus, only the most
tenacious newspaper reporters and academics have been willing to
search for the facts. And only those newspipers such as USA
Today, who can afford the legal costs, have been in any way suc-
cessful.

469

In addition, because athletic departments uae creative 8ca>»2*™«
methods to remove as many expenses as possible from their books,
thev are adept at concealing maiions of dollars of Ive^Thovr n^
annual deficits are much more extensive than the NCAA and mm-
vidual athletic directors admit, and reading tlMsir fmancial books
requires an expertise that most investigators lack. .
^ome people are pessimistic about Federal legislation being possi-
ble in tfis area becau» of the statistical pwAlems m comparing
the finances of various kmds of atiiletic departments as well as Uie
finances of tiie universities tiiat house them. Although the prasi-
mists make a number of good arguments from a statistical point of
view, I disagree with tiieir complaints and I very much applaud the
attempts by Representative Henry and others to get athletic de-
nartments to disclose their financial operations.

Obviously, atiiletic departments will do their books m a number
of different ways, but if tiie pubUc and the press has access to ^e
books, then the athletic departinents will have to explam and justi-
fy their accounting procedures such as moving mamtenance and
jebt servicing owS off of tiieir books and on to tiie universities .

The main point is to open the books and to allow tiie pubhc to
decide what it wants to dbwith what it finds. The best legislation
now, beyond disclosure, would be taxing as unrelated busincM
income, broadcast rights fees and booster donations as well as clos-
ing tiie priority seat tax loophole. But the emphasis on disclosure
should not be obfiiscated by statistical iargon and complaints.

Let me say in conclusion, because tiie commercial objective and
operating metiiods of big time coU^ sports are totally sepwijte
f^ro and mainly opposed to tiie educational aims of the institu-
tions tiiat house its ftJinchises, tiie justification for tins huge entjr-
prise are increasingly shaky. Moreover, tiie many tncks and de-
vises that athletic departments use to underwrite theu- annual deti-
cits prompt auctions about tiieir continuing existence.

In an era when tiie ac»demic units of most colleges and umversi-
ties are begging for money, when classroom buildings and researcn
labs are falling apart, when tuition and otiier student coeto nse ex-

gonentially, when graduate teaching assistants are not POM &
ving wage or f^ty commensurate with theu- professional skills,
dowit make sense to throw needed money down the athletic de-
partment deficit hole? , ^♦vw;--
And in tiie 1990s, because of tiie increasinfiOv expensive fthletiw
arms race and in spite of the infu«on of f.V dollars into the
NCAA and individual schools, these deficits will increase. CoUege
snorts is undergomg wstemic failure and only m^r surgery
SSe th? JStiSfjBiprSentative Henry's bill k an miportant first

step in the process, and I u«^t^® Co^^^f* ^ mmmente.
In conclusion, just to very briefly add to Mr. Geiger » «>n^ente'

formed by tiie press and as well as within the Congre» to bnng
reform to colle^ sports. So it seems to me that the greatest aid to
this movement is full disclosure.

477

ERIC

470

Representative Henry's bill is not a radical bill. All it asks is dis-
closure in many cases ci public universities or universities that re-
ceive public funds, so I very much endorse it

Thank you for inviting me and I would be very happy to answer
any questions.

[The prepared statement of Murray Sperfoer follows:]

ERIC

471

INDIANA UNIVERSITY

OEriaTMtVT Of fNOUSH

May ao, 199X.

ll«pr«Mnt«tlv« Villlu D. rerd,

Subconltcm on PestMcondary Bdueatien,
Caaaitt** en Idueatien and I^or,
onttcd States lleu»« of «i»r«MBt«tlv««,
vashingtm, D.C 309X9.

Os«r R«pr«»antativ« ford,

ThanJt you for ••king b« to pro»«>t wf vimvm on coll«»«
■thlottc fliwBClal diocloouro and public •ceountabllity.

SOM pMpla aro poasiaictie about fodoral laglalatlon baina
poatlbla tn this araa bacausa of ttoa atatiatScai problaa. In
wSpirin, thTfinanca. of varloua kinda of •tt|l»*i« ^'PfJ^T"*'
aa wall aa «»a finaneas of tha unlvaraltiaa that Doum tha».
Althouoh tha paaaalata aaka a imabar of valid arguaanta froa a
•tatlatleal pbint of viaw, I dlaafraa with tbalr ooglalnta and 1
vary such applaud tha attaapta by 'ful "•n'y,*?*^!!?*^-
,ot athlatlo dapartaanta to

Obwleualy, athlatlo dapartaaata do tl»lr booka In aany ^£«""*
vaya but If tha public and tha praaa baa aceaaa to tha
»;„ Urn athlatlidapartaanta will havo to aKplaln uA UaUULtt
tholr aecountlna proeaduraa—auch aa aovlng aalntananca and dobt-
aarvldng coata off thalr booka and onto tha unlvoralty'a.

Tho aaln point la to opan tha »>«»ka and to ■"w «»a public
to daeldo what it vanta to do with what It *inim. Tha ^.
liglalatlon now, bayond dlacloaura, "
bualnaaa Inceaa, broadcaat rifhta
Mil aa cloalB* tha priority joat ta» loophola.
on dlacloaura ahould not ba obfuacatad by atatiatleal Jargon and
eeaplalnta.

47:)

472

HprMMtAtlv« Villlu 9. Ford

X mcloM • Img mnmrpt from *a artlola that X jut vrot« for
tto g^iiMfcfe HiAil J^XBil *t Coiiiitoi* onlvmlty (it viil appMr in
thm mtammr immm of tto )MrMl), t&at wtliriM th« tavic probln* ii
ttUotie d«p«rtMnt tiMming and tiM nanns vhy full disolosura of
tuolr finaneiol boeko iv ii^rativo.

£1^1 ish i Asarican Studiaa,
Indiana Univaraity.

ERLC

473

"YOU can probably count m your two hand* tho nu^or of athlotle
dopartaanta that actually hava a aurplba aiuwally."
—•Pleli Sehaltf, •xactitiva diracter «t tb« KM.

ona ot tha baat »apt aaerata about iBtarcolla^lata athlatica—
vall-9uardad baeauaa athlatie dapartaanta ara a«tra«aly raluetant to
epan thalr flnanctal booXa-'la that In apita of tha huga aaount of
ravanua froa tlekat aalaa and TV rifhta faaa aoat athlatle
dapartsanta loaa aonay. If prof it-and-losa ia daflnad accordinf to
ordinary bualnaaa practicaa, of tha tOi aaabara of tha HCAA, tha «93
of tha WAXA, and tha ovar 1,050 Junior eollagea, only 10-JO athlatle
program* maJca a conalttant albeit a»an profit, and in any «ivan
yaar, anothar ao-30 braak av«n or coaa cloaa. All of the rest— ovar
3,]eo->loBa anyvhera froa a fav doUara to allUona annually on
collage aporta.

even the HCAA acltnowladgaa the poor financial health of college
aporta. Xta aoat recent atudy on thla topic, EfiSCftOUU

SxsanaaA al T^t-.r^Mieaiate atnuUfi Jsflsam. •«»ietic

departaente and repotted that the vaat aajority loat aoney. for
axaapla, the Wnlvaralty of Wichlgan'a athlatle prograa in l»««-t9. In
apita of a conaiatantly aold-out 101,700 aaat atadlua §sA victoriea
in tha Roae ftowl «od in the MCAA aen'a baaketball teurnaaent-eeming
f).» aillion froa thaae eventa—endcd tha yaar $1.5 alllton in the
red and projected a |5.3 aillion annual deficit for the early IWO'a.

Thoa the ayth that college aporta ia iaaenaely profitable for
the achooie that eupply the taaaa ia f.lae, and the corollary that th.

474

m^nmf •arnftd tmt thia antftrpriiM halps othar parts of thm unlv«r»Uy
ia claarZy untrua* All of tha ravanua that athlatic dapartmanta
fanarato ataya in their cash dravar and, at tha and of tha yaar, vhan
tha dravar is ai^ty, they tail aonay frM other parta of thair
coilagaa and unlvaraltlaa, yaually frM tha Canaral Pparatin9 Fund.
Thua dollara that could go for educational purpoaaa diaappaar down
tha collage aporta deficit hole* Den Tyaon, OsairMn of Tyaon fooda
and a waahar of tha state of Arlumaaa Kighar education CoBsittae, put
the Mttar auccinctly vhen he cossentad on tha sulti^aillion dollar
athletic department daficita in hie atate, ^'ira'va got the deal
epottad. If thay tethletic dapartttenta] don't gat enough »oney, they
ateal it out of tha education budget."

Ascertaining tha exact apount of red ink in college aporta ia
aKtresely difficult. Because athletic dapartmanta are often
autonoiDoua or aemi^autonDROus unite vith little real auparvieion by
univereity officiale, they can erect ''Iron curtaina«* around thair
operationa. J^an at public univaraitiea, vhere no legal
juetification exiata for their aecrecy, they vill not reveal thair
true financial altuation* One univereity reeearcher on thia eubjeet
eaid, '•Whan i vent after athlatic dapartsant boolce at public
univeraitiee^ even though Z clearly had tha atate fraedoe of
inforaation lat^a on my aide* it vaa alvaya na and ay lavyer and vary
ehallov pocketa, against tha athlatic departmnt and tha univeraity'a
lavyare and vary deep pockets, I vaa told by one achool that thay
vould fight vie to the state supraae court rather than open their

475

•tnUtic ««p«rt«»J>tU bOPX«.<

Thus only tti# post t#n«clous n«v»paiHir r«pert«rs and acAdcmicff
hM Umn veiling to loarch for th* facta, and only tHoso newpapara
such mm yfi& T^ay . who can afford tho lagal ceata, hava boen
conaiotontly aueooaartfl. (Zn IM, taimiL did a vary
eowparahonoiv* aurvoy ot coXlago footlwlX and baakatball coachaa'
#aUrlaa, parka, daala, »nd financial acava, and aat In »otion a
nttiMr of aoadmie atudiaa of this problaa.)

in addition, bwauto athlatic d«part»anta uaa "craativa
accounting* Mthoda to raaov. aa »any axpansaa aa poaaiblo from thatr
tooka, thay ara adapt at concaaling »llliona of doilara of loaaaa.
Thair raal annual deficits ara tauch ffora axtanaivo than the KCAA and
individual athlatic director* adait, and reading their financial
tooolca retires an expert iaa that aoat invaatigatora lack.

If a reporter ia aarieua about examining athletic departwant
financea, the firat Itea to atudy ia the »oft obvious and the most
overlooked. The iraediately viaibls ays^la of college aporta are
ite huge atadiuM and arenaai ironically, the »oat aignlf leant hidden
coat in intercollegiate athlatica ia the financing and «aintenence of
theee facilltlea. Vary fev achoola build a atadlu» or an arena with
oaah up front! once the »oney ia borrowed, aosaona has to pay the
intereat chargaa and try to retire tne debt, and that aoseona la
usual ly the atudanta In the foru of mandatory annual feea. *t most
state of Virginia achoola, for example, each student paya at leaat
f 100 a year-*oftan placed in the innocuoua appearing "Activity Feea"
ites on the atudent'a bill— for debt-servicing and other athletic

ERIC

4H3

476

d«p«rtMnt •irp«n«v«. In ttout cdi«s, tha studants ar« unavar* that
th»y mrm paying part of tha athlatlc dopartncnt^a bills by tneana of
thla hiddan tax.

Koraovar, becausa of vhat the aociologlat Marry cdwarda tanaa
tarn *Colltt9iate Athlatica Araa Raw," coachaa and athlatle dlractora
dmand atata-of-the-art f«cilitiaa and can navar atop apanding to
•egulra than. In tha last dacado, al»oat all Bi^ lo athlatle
d^partaanta built Kulti-aillion dollar Indoor football practica
flalda although tha.leglslaturaa in thesa rust-belt states fraquently
cut funding to highar aducation.

Onctt tha atadiuaa and othar facilitiaa ara built, maintaining
thaa la onoraoualy axpanaiva. football stadiwaa* uaad f iv* or mix
tlaoa a year, naad apacial oaro becauao of tha atraaa on concrata
during cold vlntera and hot sumaara* Indoor arenas, weight^rooas^
at. al ara also costly to aaintaln, Vhenevar possible, athletic
dopartioenta Bpva those aalntenance costs off thair books and into tha
^Bulldinga-and-Grounds» Una in the univarsity-vida budget, thus
avoiding alllion dollar-plus bills, soma athletic dapart&anta,
vlthout inforaing tha public of these financial aAneuvera^ than claia
that they balance their books and reporters dutifully report this
"fact." If the prase would probe these clalss end exaaine the
aalntenance and dsbt-aarvicing expensaa of athletic departaents, the
reellty vould aaase thea and their readers.

The aingle greatest expense, hovever, for athletic prograas is
pereonnel. This year, aost bigtlae athletic departaents will pay
over $5 alllion in wages and benefits to their eaployeee (also
athletic departaente are notorioue for thsir bloated payrolle end
nepotiea), Schoola often absorb a large psrt of this expense by

477

placln9 -thUtlc progr.x p.r.onn.1, including ccachos, on regular
faculty or •t»ff lines in th.lr budgsti, tvan though few of these
p«epl« the ln»ld. of a claa.room on a regular baaia or do any
vork for tha unlvaralty othar than eoUaga aporta taaka. At atata
inatltutiena, paraonnal llnea in the budget ara pubUe infcmation
mm Bchoola have to ravaal thaa (often tha library raferanca daaH
k.«p. tha .aatar Hat). A reporter anoad vith a Uat of an athletic
dapartvant'a coacha. and ataff-lnstantly obtained froti tha
departaant'a publicity offic—can aaaily diacov.r their aal.rl.a aa
«,n aa whether they ara Hated bb teechlnq paraonnel.

Another nulti-BiUion dolUr axpen.e often removed trm athletic
department booJc. are gr.nt-in-.ld. r-thl.tle acholarahip.) . Athlete,
are tha only group of atudanta recruited for commercial
•„tart.in».nt. rot academic, purpo,.. end they are tha only atudent,
vho go through achool on grant, baeed on their talent and potential

cor.r.erci.1 entcrtaincra. not on their educational aptitude.
Hevrthalaaa, the NCAA ed»it. that »any athletic department, -that
.ward grant-in-aid to participating athletes do not report th.a.
coat, aa oparating axpen.ea- bec.u.e they are able to get their
achoola to fund thea out of regular atudent achol.r.hip soney or
othar aeureaa. Ihia financial nanauver becoMS particularly
pernlcioua vhen Inatitwtion. allow coachaa to ta.a opportunity Grant
.nd other aonay targeted for needy .inority atudent. and a«rd It
matead to athlete, vlth .i"i»»l ^AT acore. and Uttla aptitude for
college work.

Another grent-in-ald financial trick i. tha ^out-of-atata/ln-
.teta- a^an 9.-- P""*^ Inatltut.ona. .o«e athl.tlc department.

4Su

478

W tyitim for out-of-sUta athlatM *t iii-sUt« nf, r«<tiiciiig
this si^nsa by six figura aaomits. Ruportar* covia uk« th«
progrm^ Ascartain tli* Athi»tM' hantcmm, mn^ tli«n tak ths
tiiilv«raity tp supply cop&u of tli« fM MatMmts for th«ss athUtM.

rhm irCM Aim atelta that a Mjority of athlatic dapartmanta
raealva -Dlract suta or Othar Covanwant Support- •nd that at Mfty
puhlio inatitutlona vith biftima prograu thia como to ovar |X
alllton a yaar. vhan fm vaa athlatic dirMtor at tha Univaraity of
Virginia, Dldc SchuUs told tha RUhfifi&d Umu AiftMjLfih that *A
fiva- to aix^aillim dollar progrM ought to ba abia to ganarata ita
owi ravanua vithout raaorting to public funda. TaJtii^ vtata tax
•onay plaMS you in a position of paopla baing «bla to aay you'ra
taking Mnay that eould ba uaad for ganaral aducation." sohulta
addad, »I Knov public »onay ia tempting but X lika to ba abIa to look
profasaera in tha aya.» Nov that ha haa baeosa axaeutiva diractor
of tha HCAA, $chulta baa yat to convinca tha collaga aporta
aatabllahaant of hia poaition en thia issua*

Tha HCAA acknovladgaa that -Diracf govomaant aubaidiaa halp
support intarcollagiata athlatica. m fact, athlatic dapartsanta at
both public and privata collagaa racaiva silliona Mrs in indir«et
subaldias. In tha rulings on Tawpla Univaraity^s challanga to Titla
M, tha*courta pointad out that Taopla'a athlatic progras «>banaflta
fros govanmantal aid to othar branchaa of tha univarsity. Fadaral
sonay to thoaa othar branchaa allova tha univaralty to divart othar
funda to tha aporta prograa.* Divart saaina too «iild a varb for vhat
can occur in tha various sonay-laundaring achanaa uaad by sosa
athlatic prograaa and cmq^liant univaralty officiala*

In sisilar vaya, cantral ateiniatratora covar a huga nuitbar of

479

»Ucell»AMUS atlilstie d«part»«nt «Jcp«ni«« or past on thosa coata to
tha atudonta i tha pharaacy depart»ant or tha univaraity haalth
aarvlea aaauaaa tha incraaain^ly aJffwnalva dru^ taata wandatad by tbi
KCM; ao»a of tha aadlcal paradnnal who aarvioa tha lntarcolla9iata
athlataa ara paid out of haalth aarvica fujidai tha athlatio
dapartMnt'a lagal problama ara tahan cara of by tha univaralty
attomay'a offlcaf tha tali^oi^ hill for racruitlng foftan a
f5O,O0D-pX»» ita») ia oovad to tha univaralty-vlda talaphona hiili
and avary othar poaaihla mupmnmm that an athlatio diractor can
eonvinca a cantral adwiniatrator to carry vaniahaa froa tha AO'a
hooKa* It raportara vouZd inquira into thaaa financial jBanauvara
and Infora tha paopla paying thaaa biXla— tha taxpayara aa vail aa
atudanta and their parents— much of thla aubtarfuga aight and.

•Daspita tha pioua half-tlwa pronouncamanta va aaa on talavisod
football and basketball gamaa, in vhich tha futura of humankind ia
tied to tha »isaiona of univeraitiaa with bigtiiaa athletic programs,
thaaa vary progra»a contradict tha fundamental ai»a of American
higher adaeation."

--pichard warch. President of Uvranco University, Applaton,
Viaconain*

tacauaa tha commercial object ivea and operating oathoda of
College Sporta inc. ara totally aaparata frors, and aainly opposed to
tha educational aiM of tha tnatlttttiona that house Ita franchiaaa,
tha juatificatlons for bigtl»a college aporta ara incraaalngly
ahakay. Moreover, the aany tricka and devicea that athletic
dapartvanta uaa to underwrite their ennual daf icita prowpt queationa

4S7

480

Ejtc«rpt Xnm a^nnrnt^t. jflMiOAl «rtUl« by Murray $p«r^rt».t

•bout thsir continuing •jciatmca. In tn or* vl^an tl^o aeadMie unit*
of moMt collsgM and univsraitios 90 M^STing for Mnoy, vfi«n
olasarooB btiiiainga and raaaareh laba ara falling apart# vhan tuitim
and othar atudant CMta riaa avponantially, vhan graduata taaetiing
aaaiatanta aro not paid a living vaga or faculty coaMnaurata vith
tliair profaaaional akilla, doaa it Mka aanaa to throw naadad vonay
doim tlia athlatie da^rtmt daficit bola? And in tha 1990a,
boeauaa of tho inoraaaingly axpanaiva •Athlatica Am luea" and in
apita of tlia infualon of TV dollara into tHa HGMf tlMao dafieita
vill incraaaa* Collaga aporta ia undargoing ayataalc failura and
Only Pijor aurgary can aava tha patiant,

Tha boat ally for tha rafers aovaaant ia an honaat and activa
proaa. National aagaiinaa and naMpaparOf and avan a fav local onaa
liha tha i^itiiter^ftii fHY) Maraid^Laadar. hava axpoaed aooa of tha
racruiting and booatar acandala involvir^ variciia athlataa, coachea,
and athlatie dapartaanta. Xn a nutabar of eiaaa, including tha
Laxington ona, thay hava von Pulitiar prisaa, validating thair
afforta and tha iiqportanca of thair tepiea.

Out racruiting and booatar acandala ara a raault of tha ayataaio
probloaa in collaga aporta, not tha cauaa» Sditora auat nov aaaign
raportara to invaatigata tha laaa aaxy iaaua of tha f inancaa of
athlatie dopartaanta and ai^aa thia root pr^laa. Probably apacial
taaH forcaa vill ba »ora af factiva than baat raportara bacauaa taaH
forca journal lata ara not baholdan to athlatie dapartaant paraonnal.
tn thia vay tha nadia can ahortcircuit tha "apaeial intaraat notvork*
and avan aicpoaa tha vaya in vhi^ tha natvorfc^a "goala Cara} gulta
diffarant* and ganaraIXy oppoaad to *tha atatad purpoaa of tha

481

Mill in Atcfalvrt • tonar prMiaent 9t clauon univorsity «nd
nev hMd of th« Univvraity of thm Pacific, m «teinlfitr«tor vlth
long •xparianc* on thoso is«tt«s« sumBad up thm tonslon botman
CollOfO Sports Xmc. ana ABorican hifhar oaueation s «Nhan acadaaica
takO» A ha4;k aaat to athlatica, you hava a pr<^laa, you no longer
Kava an inatitutlon *rtiara p^la vith intagrlty want to teach, or
imaro poopla vith conon oonaa and good valuaa want to ftand thalr
childron to loam.*

tmloat Asariean highar aducation aolvaa tMa preblan, Collaga
Sporta Xnc, vill eontini4 to corrupt it, and vitb incyaaaing spaod*
Tha raforNra vant to darall tha athlatlc dapartwnt Juggamaut. Tha
praaa ahould raport on thia canflict aa bmaatly and fairly aa
posaibla inataad of riding in tha club ear of tha athlatic
dapartmant'a high*apead train.

Hurray Sparbar la an Associata Frofassor of Engliah and Awarican
Studlaa at Indiana UnWaraity, Bloowington.

ERIC

482

Mrs. LowEY. Thank you Dr. Sperber.

I'll turn the qu^oning over momentarily. I just have one brief
question for Mr. Geiger. In looking at your statement, you said to-
wards the end that "Mast will agree that the proper group to
decide this i^e and its various complicated asp^iis is that com-

Srised of the institutional chief executive themselvra." Given Dr.
perber's testimony, I wonder who the "most" is and why should
we have confidence that if we conduct business as usual the system
will improve?

Mr. Geioeb. Well, I think my point is that it is not business as
usual. I am a reformer in terms of my own direction in college ath-
letics. This is not the first time I have sat with Dr. Sperber. I was,
until October 1st of last year. Director of Athletics at Stanford Uni-
versity and discl(»ed all of our financial information to him and its
i»rt of his research for his book. So, not all athletic dim;tor8 try to
hide things.

I think that momentum is under way for reform. I think the
President's commission of the NCAA is a very important body. It
got off to a good start then faltered somewhat a couple years ago,
and is now greatly renewed and had tremendous success in 991 at
the January convention. The Night Commission has come forward
and, I think, in its ringing declaration said that control of intercol-
legiate athletics must rest with the chief executive officers of the
universities themselves.

And I think its time to fall in line with that type of thinking and
not add Federal l^islation at this time which will increase the bu-
reaucratic nature of things but will give encouragement— we need
go give encouragement and increase the momentum that has been
underway with the CEOs through the President's commission and
the Night commission.

Mrs. LowsY. Then you don't think the legislation is that appro-
priate encouragement at this time?

Mr, Geiger. I do not think so.

Mrs. LowEY. Mr. Coleman?

Mr. Coleman. Thank you. Both of you have very good statements
and very good perspectives. And as with most things, there are two
sides, but it is quite convincing listening to both of you at the same
time.

Mr. Geiger, I want to encourage you and your reform efforts. I
^ink the NCAA has finally b^un to realize the importance of
these issues that Mr. Henry has Drought up in this bill and previ-
ous bills, because it reflects, I think, a general con<»m of the public
regarding the role of intercollegiate athletics in the context of
higher education.

And while all of us are sports fans and eiyoy the drama of the
sporting events, they do have to be put in their place. And I cer-
tainly know the reputation of Stanford and past associations with
other universities and the current one too that you hold those same
beliefs. And hopefully, the message throiigh you to the NCAA and
the presidents and everybody else is to keep on moving along the
lines that they have done.

Whether or not it has been spurred by such Illation offered in
the fmt or currently, we don t know, but the fact is that you're

ERIC

483

doing some things that hadn't been done before that needed to be

**R«arding the Raibom study, Dr. Raibom who made the study
on lossesTeithcr one of you? When you say it was broken down be-
tween the women's and the men's sporting events, I would guMS
from an observer that the women's sporting events were big losers
fmanciaUy. Is that a conclusion of that study?

Mr. Geiger. It's one of the conclusions of the studv or one of Uie
conclusions you can draw from the study. I have always felt that
there are really three segments of an athletics program; men s foot-
ball and basketball which are revenue producers, and other men s
sports, and other women's sports. j r n j

In most athletics prc«rams, when you get beyond football and
men's basketball, all of them look about the same in terms of reve-
nue generation. , ^ j *

Mr. Coleman. And yet, those are the sports that the student
body participates in more than the big time football or basketball;
is that true or not? I see one shaking his head no. . , ^ ,

Mr. Gbicer. Well, it depends on how your program is structured
but at both Stanford and the University of Maryland we had tiers
of emphasis of sports. We had some sports in which we were vigor-
ously trying for national championship and fully funding in terms
of fmanciJ^aid and coaching and equipment and all those kmds ot
things, and others that we were funding at a lesser level which are
more opportunities for participation sports. So, there are a variety
of ways of doing things.

Mr. Sperbkr. Could I _ ^ . ....

Mr. Coleman. Yes, I do want to hear your answer. But m attrib-
uting to a balance sheet, do you attribute within the department
those football and basketball expenses, and divide those out, as op-
posed to the rest of the sports? ,^ , u

Mr. Geigkr. My goal as an athletic director has always been to
reinvest in athletics programs and to provide as much athletic op-
portunity on the campus as we possibly could. Rather than trying
to make money for the institution or make money for the athletics
dei«rtment. the first goal, I think, of an athletics program ought to
be athletic activity and opportunity for students.

I was an oarsman as an undergraduate, not a revenue producer.
I know about participating and practicing in athletics m anonymi-
ty. And my experience in athletics changed my life. I had that op-
Mrtunity at Syracuse University, my alma mater, during the same
geriod of time when the university was national champions in toot-

And I'm ever grateful to that university for reinvesting its re-
sources in my sport so that 1 could have that opportunity to partici-
pate in athleUcs. We were also national champions during that
period in our sport, and it meant a great deal te all of us, and lor
me was a life changing activity.

Mr. Coleman. Dr. Sperber.

Mr. Spebber. Mr. Geiger and I were talking before, and this is
the point where we most disagree. Certainly Stanford is a good ex-
ample. In these nonrevenue sports, baseball, swimming, this whole
panoply of nonrevenue sports which, by the way, the NCAA man-
dates that a school have a certain number in order to play Division

ERIC

484

I basketiball— 14 teams and 7 sports— and they keep raising this
number and locking schools into this tremendous cost.

But increasingly these are for elite athletes, and these are not
for r^ular students. And certainly at my own school Indiana,
there are special pools for the swimmers, wiere are special tracks.
If Uie regular faculty and staff and regular students want to me
them, they can't. Increasingly these sports have become minor
leagues for very wealthy profe^ional organizations.

Baseball is a good example. Stanford has produced national colle-
giate baseball teams, and it's also produced a huge number of play-
ers in mi^or l^igue baseball. Something like 75 percent of all play-
ers in msgor league baseball today; 60 percent played Division I
baseball or NCAA baseball, and the others played junior league
ba^lmll.

But m^or league baseball does not give a cent to the schools. In
most cases these pn^rams lc»e huge amounts of money. A good ex-
ample is hockey. For instance, 20 percent of the players in the Na-
tional Hockey League played college hockey. A huge percentage of
them were Canadians, recruited from Canada to play here. I railed
up the National Hockey League and I said how many players in
the league played Canadian college hockey? They could only come
up with one, Mike Ridley of the Washington Caps.

The answer is that Canadian Colleges don't give full ride athletic
scholarshii^. So, increasingly thrae sports which began for regular
students and are now for elite athletes and serve as minor
leagues— I'm all for college sports. I played a lot of intramural
sports and club sports.

But what happens when athletic departments lose huge amounts
of money is very often they suck money away from these intramu-
ral programs and r^lar student pn^ams. So, it seems to me
that of all the areas of collie sports that need to be exposed to the
public, its these losses which I really feel are most out of control
and are most locked in by the NCAA.

Mr. Coleman. Do you have an opinion in your studies as to
whether or not women's sports are going to be the big losers be-
cause they do not produce the revenue that most men's sports do?

Mr. Sperber. Well, what has happened in women's sports is
really interesting. In the early 19708 women's sports were run by
an association called AIAW. They were very student based. At first
they didn't give athletic scholarships. There were lots of teams that
were r^Iar students.

Then in the early 1980s, the NCAA decided to take over the
AIAW and put them out of business, and e^entially they did. So,
increasingly they've turned women's sports into a bad imitation of
men's sports. One of the amazing statistics is at the banning,
under the AIWA, over 90 percent of the administrators of women s
athletic pn^^rams were women, and over 90 percent of the coaches
were women.

Now, only a small percentage of administrators are women and,
even more amazing, over half the coaches of women's college sports
are now men. Because if a male can't get a job with a male team,
he will take a job as a women's basketball coach. It's become an
entry level position for male coaches.

A > > ^

485

So. what has happened under the NCAA with the women s pro-
Krams is they've been turned into eUte programs. Now, there are
Women at Mr. Geiger's former university-TJanet Evsms whos
dreammg of the Olympics-Stanford has provictedvery good mmor
^uTwrvice in women's sports for Oie USOC, another very
wealthy professional organization.

But again, this is at the expense at many schools of regular
women? spc^rts programs. It seems to me that it's not simply a
mS^r of Se woman's teams will suffer, it's the regular students

^^°i^lSIn?TOiJ?^talking about activities that are for elite athletes,
that are of interest to aSbout 5 percent of the entire umversiW com-
munity, if you look at their attendance which are very low. And as
I said, increasingly, even in the women s sports-tbe LPGA uses
the colleges as a minor league; the ladies' tennis organization.

Mr. CoLKMAN. Vou are obviously using this as one of your aip-
ments, but I don't know that anybody has great concern whether
coUegiate athletes are successful enough for one to go on to a pro
caiwr. I'm not sure that is any reason why we ought to disclose or

" M^ii^S^mX: I guess maybe I didn't make my argument
clear. Should the universities provide mmor leagues for there
wSthy professional organizations? In football and h^etbjdl
there L a historic reason because the college game preceded
NBA and the NFL. But amazingly in there n<>n'«^f"»«, ^J^^!'
where the professional leagues long preceded the coU^
the coUeges have been turned into minor leagues esrentially and at

^l^SiaSTif^uiiiversities were wonderfully wealthy places and
could afford there elite athletic programs, well, fme. B"^af>yf"
know as well as I. universities are rattling the tm cup. .Profegor/
student ratios keep increasing and any number of
guess, 1 see it within the university context, and withm that con-
text, there programs don't make a lot of renre to me.

Mr. Coleman. Mr. Geiger? . ^- „ tusa

Mr. Geiger. I have obviously a differing Pe«S?SrArrh«m'
During my tenure at Stanford, the university won 27NCAA cham-
SonsSps in a decade, the most in the country. I believe, m the
1988 O&ipics in Seoul. Stanford had .ino^ «P'^°^^;j:^*'^J
United Stetes team than any other umversity ~""VWn at

were studente and they were athletes, and my attitiide }^/^^^^
Brown, at Pennsylvania, at Stanford, and now
I hfa.T* rerved b5i four institutions as director of athletics, is that
athletes are by nature interesting people.

They add to' the diversity of the community,
of the campus in a great many important ways. Atiiletes thmk m
StSes^ ways, thiy do things a little bit dirferently, they re won-
derftS mSkgeri they're very amative. "»»oya*i^.' "°g^^-
tional people becaure of the nature of theu- exceUenra m athletics.

nS ffi^Sf them are necessarily great students acadenu^y. and
we aU know of colossal failures and concerns that w© have m th^
areas. I think we're attempting to ^^,^'>f^%;!S^^^^^.
But athletes and athletics are not bad and not evil. Excellent ath-
Stes are as valuable to a community in their way as exceUence m

ERIC

486

otlwr kinds of ways, whether it's playing the saxophone or the
viohn or b«ng a great dramatist or an artist or whatever. I think
atmetes and athletics are valuable things in a community.

So, Idon't see ^lything wrong with supporting them. I think
we re trying to find a system and reform a system so that it's a
little bit more comfortable, a little bit more affordable, and a little
Ittt more compaUble with Ufe and higher education in the 1990s. I
think all of us are on a mission to try to do that. But I don't think
athletics inherently are wrong or l»d or evil.

I also beheve in athletics for aU. And I think that there should
be a broad base recreationally, I think there should be excellent in-
structira at the beginning level in colleges and universities for stu-
dents that wish to learn an athletic skill for life, for life improve-
ment, lifestyle improvement. I think there should be intramural
^vity for those that are a bit more gifted then that, and I think
there should be elite programs for those that are very gifted.

Mr. CoL^fAN. I thank you, I know Mr. Henry has a number of
qurations that he undoubtedly wants to ask and comments he
wishra to make. One final comment from me, I think it was good
for college athletics that a school like Duke can win the national
f nampionship and BtiU graduate well over 90 percent of their ath-
letes. Tliey are outstanding scholars as well as athletes, and are in-
volved m athletics to the degree it should be all about.

A second item, this weekend I eiyoyed the exceptional talents of
a young musician who was a graduate of the Univeraity of Indiana.
He IS the yoimgest student ever to be admitted to that institution;
he was 12 when that occurred. He now plays professional violin
and prol»bly will make some money off of that some day.

So, at least Indiana is not only serving the NBA well. But it also
serves some very fine chamber musicians who can go out and grad-
uate from the minor leagues into the majors. I thank both of you
for appearing today.

Mrs, LowBY. Mr. Henry.

Mr. HsNBY. Thank you, Madam Chair. We've gotten off on a
number of tangents that we could disagree or agree on all sorts.
Let me make very, very clear to Mr. Geiger I'm not against athle^
ic programs. I have no strongly established positions as to whether
or not we ought to treat NCAA Division I programs as minor
league sports activities you know, professionalize them or not.
that 8 not my concern in the least.

I just wonder why we can't have the data publicly disclosed. That
18 really what I would like to focus on, because the only point of
the legislation is to establish a uniform data reporting base for in-
stitutions on athletic revenues derived and expended by sport.

The reason for that is my belief, first of all, that it's not avail-
able—and 1 11 come back to this—and secondly, believing that some
kind of uniform disclosure, publicly disclosed, is the best protection
for a reformer such as yourself because of the tremendous pressure
you wUl get, from your alumni association or from the institution's
constituencies or whatever, to go around the edge in order to keep
up with the other guy because everyone thinks the other guy is
doing the same thmg.

So, let me start backwards on this and first of all ask you, Mr.
Geiger, whether or not you believe it's needed? Is there anything in

RJC

487

this biU, in terms of just asking disclosure which is intrusive on
the Bovemanwofa higher educational mstilutionf

I don^think, per se, tiiat it's intruave on the gov-
eraLce. My concern about it is that it is one more step that we all
have to take that I think is perhaps unneceswiy.

Mr. Henby. We'U come back to that later, but .

Sfr Gbger. We have a requirement now m the State of Ma^-
landthJt I applaud that the Board of Regents passed this year that
5? of^B iSSuSons in the State of Mwyland system. Umvera^

I^land^ri report annually to the R^nts m a P^scnlx^
wavto the university^rstem in Maryland there are common ac-
SSit^^ms- We^affunderetand tte bases m which the report
is beinc made, and it's very clear as to what we re domf, „ ^ .

IdSf't^h to sound iSe somebody ^homay^
to obfuscate this thing, but accounting procedures from
to^i^tion, State to State, public versus pnv^te. all of those
kinds of things are very different, one f^^.^^^l^- . Marv-

I've just finished revamping the accounting system m the Maiy
lanfs^^m to make it mote precise and

snort exnenditures are and how we are, mdeed, able to analyze

But ourTis very different from others in the Atlantic Coast Confer-
ence, because I've tried to (»mpare them.

There have been other things that have been done The NCAA
has come forward with graduation rate disdosure forms. Here is a
um ^. _, „„:j„_oMo ommini of time and enort to

SriidMK^^ b;; Sie'^iik^ of )^e it .tekes to
j^this part of the right to know aspect of this thing is amazing to

^And"J^e would like to continue reforming along tWs way in ways
thSt the NCAA understands, ^no^^.how to do. continue to
Dr Raibom's work and work withm the NCAA w^JJ^J?^*
reform that's already underway, under the direction of our CEOs.
We just think that's a better way to go. „„^;nr.

S/r^ENRY. Thank you. The reason I to ask the qu^ion

is that I want to establish that my objective here is not m any
way. to become intrusive into the govemanw of a university.

toDr. Sperber. Mr, Geiger tells us in^
tainly Were, that sufficient date abready «nsts. And ImwDnder-
iMif vou would address the issues to whether or not a CEO or a
SLS Sf ?rS^. a president or a boai^ of tn»^ in fact

Success to aU the data that typicaUy laijp NCAA Division I ath-
Ifttie DTOffram— do they, themselves, have the data/

Mr^sSSi^ ffi well. yes. They can get the data, although
there's ardency by CEOs to delegate this to a vice presid^f a
'^e^ty who^Tif the athletic department «
any scan^ that hit the newspapera, I ^ink most CEOs wouw
SSil^T^eKamine this pnAlem becau« thev .know th« isa very
Miotionally charged ar^ and involves Uie public and the preM.

TS tlw^problem. though, if vou go a step beyond Uie
trust^andthe C&s is that the NCAA says tbateveiy member
h^tohave a faculty athletics committee, a committee thats sup-

ERIC

488

posedly in chai^. If you notice when the NCAA gives penalties
they talk about, "This school did not have ii^tutional control of
its atiiletics program." And this athletics committee is supposed to
be one of the main instruments of institutional control.

Well, in my res^rch, one of the things that amazed me is I
found almost a handful of faculty athletic committees that got to
see the financial books of their athletic department Now these
committees historically have often been rinsed by the atiiletic de-
partment in coiuunction with the CEOs, and they tend not to be
representative faculty members. They tend to be faculty who axe
very infatuated with college sports who also get tickets to the
games, are often on the charter flights, go to tiie ball games, and
sudi, so tiiey have a tremendous omflict of interest.

But even in just asking the sMght up question, "Did you see
the books? Can you see the books?" And over and over again, they
don't get to see the books. They get to see the budget at the b^-
nmg of the year, and in many cases they didn't even get to see
that. And the budget, as Mr. Geiger can attest, because of the
nature of coU^ sjwrts, is very conjectural. You don't know how
many people are poing to a>me. You don't know how many games
you're going to win, if you're going to go to a ball game, or wha^
ever.

So the idea that beyond a very small number of people, the presi-
dents and the trustees who actually could have access if they chose
to use it, no one else really gets acee^, even these faculty athletic
«}mnuttees. And if you go beyond that, r^ular faculty members
can t get access. And of <»ur8e the press has used to use the Free-
dom m Information laws.

So I gueas mv own attitude is. maybe, simpleminded, but they
say. Well, we have nothing to hide."^Well. okay, open the books.
At many univemitira right now the faculty salaiy lists are de-
posit in the library.

If you go, at my school or any school in my State, a public insti-
tution, if you go to the library reference desk and you say, "I'd like
to see the salary list," they'll go and they'll hand it to you. They'U
hand you departmental lists. They'll hand you any number of uni-
versity financial books. But if you go and ask to see the athletic
department books, they're very edgy about this and it's almost im-
possible.

Now, I congratulate Mr. Geiger. In my research, Stanford, which
is a private institution and did not have to open its books, was very
forthcoming, was astoundingly forthcoming. But I think one of the
reasons there is the University has had tight control of coll^ ath-
letics and the administration, not simply the president but various
administrators, look at those books very carefully. The faculty ath-
letics committee input in such.

Stanford in a way is a model for the rest of this country, and,
ironically, it's a private university. But then again, universities
that receive public mcmies, where they're private or public, I think
should be also open their books.

So I think you're a^dng for minimal stuff. I find it hard to be-
lieve that there's any controversy in this. It makes me very suspi-
cious of the NCAA which claims it wants to reform collie sports
to do this very minimal step. They have to do their books anyway.

489

just say, "Okay, Cleveland Plain Dealer, you want to s^Ohio
Ce%x&»T fk^'« in this place. C«ne and s«
BUT X, you're a researcher, you want to see it CJome and see it.
And I &>n't think it wiU take any great . . .

Now. with the graduation statists, ^.^^^^g^^
them their way. and maybe that takes a httie bit of time. But I ve
worked with the NCAA acad^c reporting forms. It * tajf«
great time. Maybe people work veiy dowly m athletic Jpaitoiente.
Srtl'm sort of anSttrfthat you said the amount of time it takes
ba»u» I've gone throuA great numbers. There's a gentleman
fi^X p^ftSmX^hrK HUgher Education ^re tojay.
who went tiirou^ aU Division lA schools, weU over Jf^it
took an amount of time, but that, even there, was not a huge bur-

^sSTgi^iust this idea of "Why not open your books?"-if
you're not hiding anything, no problem. . *

^ Mr. HKNBrSieiSf the biggest fectioM--and most of ouj
inra in ttese extended on the Higher Ed Reauthorization Act are
^th? d&^ in Oie Stiident Aid pr^.. And, «^^cc«m«.
we're dealing there with aid programs based, primarily, on finan-

"^S^y don't have, other tiian ba8i<»;iX.8aying you have to
justify your position to be a student, we don t have ^^"^J^P^T
iased f ederilscholarahips. We have our ^n^ta^XaoK^^o^Jf
mSte. we have these new science sdioterrfups ft5»^«,^.3^'
We £ve very UtUe by way of any kind of ment4)ased, they re fi-

'^^A^TO^thletic programs, of course, basically run on merit-
ba^sSSAhios in teiSof athletic ability maj^*. not ^ennc
ability. Now, I Cow that NCAA rules are diggmg^»ntotlMj ^d
there are soiiie reforms in the last 2 years tiiat you ve stood by, and

I commend you for that. , , , ^^„ui„

B^Tm Wondering if Dr. Sperb^ has done my '^Jfi^^P
the number of meriSiased scholaishipe by way of de^rt^nt^en-
rSuments in athletic de^toente vis*v?s le^sy
try, foreign language, feiglish, economics, social science, history.

plS, bStt«y tendto be m^Shhigher than pure

S5£. Most Jegular stiidenta who receive scholarships receive fi-

°One of the interesting thing that yo" ^*
and their academic reportiM forum gives >™<>™»?SS°o^*in
are called "spedal ^nits." Every school has a certam
?£?berof rt^entTX tiiey admit who do not
normal admission regulations. For mstance. when If was at Aat
Un5e«ity of CalifoSa, B«:keley. Oiey had ^^^^^S^, ^hn^re
p^nt rule and it was mainly for Asian-Amencan lads who were
wSs butaigliah was a very distant Iwguage for them and.
obviously, these stiidents belong in the ...

WeU athletic departments long ago figured out tb9 spewal admit
loo^e^dl^^the ChSiSe of Higher Education w^t
S^h the NCAA reporting forms and came up with brilliant ste-
Sti^ I'll give you mVown school, for example. 6 percent of Indi-

ERIC

490

ana's students are admitted as special admits, but 28 percent of the
athletes are adr-^tted as special admits.

And what wu raally fascinating was that only 26 percent, I be-
ueve, of the rooumll and basketball players, wherras a very high
pereentage of the nonrevenue sports athletes were admitted as spe-
cial admits. I think at some schools like Stanford, as Mr. Geiger
pomted ou^ Ujey turn out to be regular students. But at many
other schools because these nonrevenue sports have become such a
big thing, they're less and less regular students.

Going thn>ugh the special admit shows some amazing things. My
alma mater as an undergraduate was Perdu, and I'm very proud to
see that only 1 percent of aU Perdu students were sproial admits.
And less than 1 percent of the athletes, which could also explain
wig' Perdu IS at the bottom of the big ten in athletic wins.

So I think a whole sort of subculture has grown aroimd the ath-
letic department that rats away at the university not simply in
these financial areas, but also in the area of admissions. Now, r^-
lax students are very aware of the special admits, the athletic
scholarriuiM, for a sjtill, not for academics, but for this nonuniver-
sity skiU. And I find that rather than breed school spirit, it tends
to foster a tremendous amount of cynicism on the part of regular
students and faculty.

You Mint if this were open to the public, too, I think the public
^uld be mcreaaing exercised about what's happening in higher
education at a time where, as you point out, we're not competing
globally as well as we should. Our classes are getting bigger. Some
studies show that our students are less and less educated. Mean-
while, there 8 this black hole over in the athletic department that's
suckmg up huge amounts of money.

I'll ^ve you a perfect personal example. Every year at Indiana I
teach freshman English, Because of our financial constraints, we
are teaching it— I have to teach it in a class of 150 students. I have
to teach students to learn to read and write at a university level in
this huge sort of operation. Meanwhile, the athletic department
budget at Indiana last year, their revenues and expenditures— and
they lost money at the end of the year they admitted— was $30 mil-
hon.

It seems to me, increasmgly you're talking $30 million for beer
and circus, meanwhile, the regular education part is rattling the
tm cup,

Mr. Henry, You're introductory English classes are 150?
Mr. Spebbeh. That's right.

Mr. Henhy. Are there any intro football classes, and what's the
ratio there?

Mr. Spebber, Well, if you took— football coaches are very upset
because, as Mr. Geiger pointed out, the NCAA has cut the number
of a^istant coaches allowed. But if you took the total number of
coaches, as school like mine has 16, and you have 95 playere on a
team, which is coming down to 86, so say 16 into 86.

Mr. Hmy. Excuse me, you said 95 coming down to 85? I
thought the NFL only allowed 44 on a raster,

1 '^^y ^ «reat boondoggles in col-

lege football. I ve never understood why an NFL team can manage

491

a much more difficult schedule with. I think its 47 on a roster,
meanwhUe a footbaU team needs 95 full athleUc scholarrfups.

But as you point out, I tiunk its these kmd of financial fiwto—
you would at your athletic scholMship 7^^!"^ .ff
your 95 playere and such. And you would see the cost of At f
I'C- w 1! 1 »»i.wT» cM«ttnia*«Kin hill was over So mil-

idKwl like Sanfoid, the "athletic scholarship bill was over $5 mU-
~ believe, when you left. . , , ^t.. . ur-

i're talking veiy agnificant nuntAers, Mid I thmk the miblic
has a rig^tobe informed about this. And ^theresj^ «

myths that buxden any pubUc discussion of college sports. Sudi as
the number one oneTthat it makes money for tte whools myolyed.
But I think if the public became aware trf just the financial facts, 1
think the pubUc would pfet behind the reform movement.

Indeed, Mr. Geiger a one of the real reform AOs but, as he
knorobetter thanl, there's a world of ADs and coaches outtiiere
that don't want any reforms, and some of tiiem have very powerful
backers, both on boaids of trustees and withm thwr refflons.

Btat it would seem to me if the imblic can get behmd Una whole
question and put a Uttle backbone in the presidents, Itlunk you
S^^t real reform. And the best way is to open ttie books, allow
tibe press in. allow researchers in, and to mform ti» puhhc.

Mr. Henby. Madam Chair, you've been Benerous, M»d its lateso
I have one final question-Mr. Geiger, m dosmg then, I U pve you
the last woixl-which I think Ij kind of generous of me, given my
interest in the biU. Why then, don't you wwit open dwclMure raid
sunshine on the records? And why would not, m IwJ* of Eh^
Sperber's comments, actually assist the reform movement, because
itV open for everyone to see what you do? And can t you take pnde

GinoKH. Well, in fact-as^ I'U repeat what I said in my
testimony. I think there's a fmr amount of sunshine now. And 1
think mbst of us are disclosing a great J^ar^^
Kreat deal more as we get into NCAA directed, NCAA led reform
movements. And I think we ought to be encouraging oiur chief exec-
utive officer* to do this without the overlay of Fe&ral legislation.

I think its time for the higher education commumty to do^
ranks and to accomplish the mals of the Nwht CommMsion and
the President's Commission of the NCAA and accomphsh some of
the kinds of things you're talking about^ some of the kinds of
thLgs Dr. SperbOTta&s about-Sfliough I don't agree with aU of
them-and some of the things I've said.

I think that we're on our way. And. I thmk, .to. *fl?*l
yoiir scrutiny and with the scrutiny of the public, I thmk that we 11
deliver.

Mr. Henby. Thank you.

Thank you, Madam Chair. , , . ...

Mrs. liwK^. Thank you. And I want to thank you for your t«ti-
mony today. It certainly opened my eyes and gave m»_""o™i»9°
SSt I dSS'y have the foffiiest notion existed. And I appreciate

^Xf F rtiu am puzzled. Mr. Geiger, as to why tiie additional in-
centive that could be provided by this legislation to encoursge
Sose whTmight not be as forthright as yourself would be m any
way damaging.

ERJC

492

Mr. Geiger. I don't think its necessarily damaging, I just don't
think its nanssary.
Mrs, LowEY. Tlmnk you very much.

{Whereupon, at 1:20 p.m., the subcommittee was adjourned, sub-
ject to the call of the Chair.]
[Additional material submitted for the record follows.]

493

AMERICAN GCXJNa ON EDUCATION

Office itie ft)wictefv

May 31.1991

Hie Hcmcmble William D. Ford
ChAinnan

Suba»nmlnee on Fostsecondary Education
CcMnmittee on Education and Labor
U«S House of Representatives
Washington, DC 20515

Dear Mr. Chairman:

On bdialf d the Americui Council on Education, an association of
over 1,600 colleges and univer^ttes, we axe submitting this letter for
inclusion in fte recont of tiie hearings of tiie Subcmnmittee on college
athletics financial disclosure and public accountability.

ACE supports tihie position of the National Collegiate Athletic
Association that accountability for operation of the intercollegiate athletics
program ^ould reside with uie institutional chief acecutive frfficer and
ultimately with the institutional trustees. We believe that ample
xemiiiematts exist under currait NCAA rules to assure this accountability,
and that at least at the present time, federal legislative activity to rdnforce
such accountability is premature and imnecessary.

ACE's position is tMs regard derives in major part ftom its confidence
that the process erf sdf-^analy^ and refcmn in int^rculegiate atidetics matters,
now saiously undeway In the pc^tseomdary-education commimity, has
already shown significant lesults and,r nu^ important, is bdng amesslvdy
led by Ae NCAA Presidents Commissiim and the institutional cmirf
executive officers thonsdvcs. In common with the NCAA, the ACE Is firmly
committed to ihe process ol self-regulation - by educational institutions
acting ^ngly and m ooncert - and believes that m> need presottiy exists for
furtiter federal involvement in intercolteglate athletics affait^

Sincerely,

RobbiH.
President

One DupoTtf C»de. WtaNnofox 0 C 20036-1 1<?3 C202) 939 9310
FAX (202) ft33-i760

5'>|

ERIC

ISBN 0-16-035677-6

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